MICRO - LS13 - Consumer & Producer Surplus Flashcards
Consumer surplus
The extra amount of money consumers are will to pay for a good/service above what they actually pay
It is the utility or satisfaction gained from a good/derive in excess of the amount payed for it
Producer surplus
The extra amount of money actually payed to producers above what they are willing to accept to supply for a good/service.It’s the extra earning obtained by a producer above the minimum required for them to supply the good/service
[[Producers are sometimes willing to sell goods at different prices … but there must be some price below which producers are not willing to sell if producers manage to sell products above this minimum level, they benefit from extra revenue … this is producer surplus]]
What must be drawn on producer/consumer surplus graph
Demand/Supply curve must touch axis
What curve does the consumer surplus touch
Demand curve
What curve does the producer surplus touch
Supply curve
What the incidence of an indirect tax
Refers to distribution of tax between consumers/producers
When demand is elastic
Burden mainly on producers
When demand inelastic
Burden mainly on consumers
The incidence of a subsidy refers to
How the gains of the subsidy are distributed between consumers and producers
When demand is elastic (subsidy)
Most gains go to producers
Larger change in quantity then price so producers gain/benifit the most
When demand is inelastic (subsidy)
Most of the gains go to consumers
Larger effect on price then quantity so consumers benefit gain the most
