Pack 8

Question 1

Define producer surplus

Answer 1

The difference between the amount producers are willing to sell a good for and the price they actually receive.

Question 2

Define consumer surplus

Answer 2

The difference between the amount consumers are willing to pay and the price they actually pay. The utility/satisfaction gained from a good/service in excess of the amount paid for it.

Question 3

How would you show producer and consumer surplus on a diagram

Answer 3

Consumer surplus - the area below the demand curve and above the price.

Producer surplus - the area above the supply curve and below the price.