Th1.2: Consumers and Producer Surplus Flashcards
Define consumer surplus
the difference between the price the consumer is willing to pay and the price they actually pay
Refer to PP
Look at Graph 14. Which triangle represents consumer surplus?
the top one / orange one
Define producer surplus
the difference between the price the producer is willing to charge and the price they actually charge
Refer to PP
Look at Graph 14. Which triangle represents producer surplus?
the bottom one / purple one
What do producer and consumer surpluses show?
the economic gain from the buying and selling of the good
What does consumer surplus show?
the welfare gained by consumers for buying the good
What does producer surplus show?
the economic gain for producers by selling the good
What is shown under the demand curve?
the total satisfaction consumers receive from buying the good
What does perfectly elastic demand mean for consumer surplus?
there is no consumer surplus
What does perfectly inelastic demand mean for consumer surplus?
it is infinite
The more inelastic the demand…
the higher consumer surplus is likely to be
When supply is perfectly elastic, what is producer surplus?
0
When supply is perfectly inelastic, what is producer surplus?
infinite
The more inelastic the supply…
the higher producer surplus is likely to be
