Micro 8 - Consumer and Producer Surplus

Question 1

Where are consumer and producer surpluses on a diagram?

Answer 1

Above and below the equilibrium price

Question 2

What is consumer surplus?

Answer 2

• When a consumer pays less for a good than the amount that they’re prepared to pay for it, this amount of money is known as the consumer surplus
• So the consumer surplus is the difference between the price that a consumer is willing to pay for a good or service and the price that they actually pay (the equilibrium price)

Question 3

If someone was prepared to pay £10 for a good and bought it for £8 what would be the consumer surplus?

Answer 3

£2

Question 4

What is producer surplus?

Answer 4

-If a producer receives more for a product or service than the price they’re willing to accept the extra earnings are knowns as the producer surplus
- So the producer surplus is the difference between the price that a producer is willing to supply a good or service at and the price that they actually receive for it (the equilibrium price)

Question 5

Which type of diagram is producer and consumer surplus shown on?

Answer 5

Supply and demand diagrams

Question 6

By what area on a diagram is consumer surplus shown by?

Answer 6

The area below the demand curve and above the equilibrium price line

Question 7

By what area on a diagram is producer surplus shown by?

Answer 7

The area above the supply curve and below the equilibrium price line

Question 8

How can both consumer and producer surplus be shown on the same diagram?

Answer 8

• One supply curve
• One demand curve
• Equilibrium price and quantity labelled

Question 9

Changes in supply and demand affect …

Answer 9

Consumer and producer surplus

Question 10

How do changes in supply and demand affect consumer and producer surplus?

Answer 10

• Anything that causes a shift in the supply or demand curve can lead to a change in the price of a good
• A change in price will bring a good closer to or further away from the amount the buyer was willing to pay or the supplier was willing to sell for and this will change consumer and producer surpluses

Question 11

Draw a diagram showing both consumer and producer surpluses

Answer 11

See Page 29

Question 12

How can consumer and producer surpluses be calculated from a diagram?

Answer 12

By calculating the area of the triangles

Question 13

Draw a diagram using letters showing the effect of a decrease in supply on consumer and producer surplus

Answer 13

See page 29

Question 14

Draw a diagram using letters showing the effect of a decrease in demand on consumer and producer surplus

Answer 14

See page 29