Perfect competition

Question 1

What is consumer surplus?

Answer 1

• Measures the value we get from consumption over and above that which we actually have to pay for the product.

Question 2

What is producer surplus?

Answer 2

• A measure of producer welfare.
• Producer surplus is the difference between what producers are willing and able to supply a good for and the price they actually receive.

Question 3

What is the relationship between the producer surplus and the market price for a good or service?

Answer 3

• The level of producer surplus changes as the market price for a good or service changes.

Question 4

Why is consumer and producer surplus important?

Answer 4

• They are important to use when discussing the effects of different government interventions in markets.
• Changes in conditions of market supply and demand will bring about changes in the level of consumer and producer surplus (welfare).