Topic 13-consumer And Producer Surplus

Question 1

Factors affecting the size of consumer surplus

Answer 1

• The gradient of the demand curve, the steeper it is the greater the consumer surplus will be
• Changes in the condition of demand e.g increase in demand will increase the amount of consumer surplus

Question 2

Producer surplus

Answer 2

The difference between the cost of supply and the price received for the product

The area above the supply curve and below the equilibrium

Question 3

Consumer surplus

Answer 3

Difference between how much consumers are willing to pay for a product and what they actually pay for a product

The area below the demand curve and above the equilibrium

Question 4

Increase in supply for consumer surplus causes

Decrease in supply for consumer surplus causes

Increase in demand for consumer surplus causes

Decrease in demand for consumer surplus causes

Answer 4

• Increase in supply>increase in consumer surplus
• decrease in supply>decrease in consumer surplus
• increase in demand>increase in consumer surplus
• decrease in demand>decrease in consumer surplus

Question 5

Increase in demand for producer surplus causes

Decrease in demand for producer surplus causes

Increase in supply for producer surplus causes

Decrease in supply for producer surplus causes

Answer 5

Increase in producer surplus

Decrease in producer surplus

Increase in producer surplus

Decrease in producer surplus

Question 6

Consumer surplus and PED
perfectly elastuc
perfectly inelastic
relatively inelastic
relatively elastic

Answer 6

• demand for a g/s is perfectly elastic, consumer surplus is zero as consumers pay exactly what they are willing to pay
• demand for a g/s is perfectly inelastic, consumer surplus is infinite (demand doesn’t respond to price changes)
• Low PED=high level of consumer surplus
• Elastic demand=low consumer surplus