1.2.8 Consumer and Producer Surplus Flashcards
1
Q
What is a consumer surplus?
A
- The difference between the price consumers are willing to pay and the price they actually pay, set by the price mechanism.
- The demand curve shows the price consumers are wiling to pay, and so the difference between the demand curve and the price shows the consumer surplus
2
Q
What is a Producer Surplus?
A
- The difference between the price and the supplier is willing to produce their product at and the price they actually produce at, set by the price mechanism.
- The supply curve shows the price suppliers are willing to sell the good for, and so the difference between the supply curve and the the price shows the consumer surplus
3
Q
Which triangle illustrates consumer surplus?
A
Top (orange)
4
Q
Which triangle illustrates producer surplus?
A
Bottom (purple)
5
Q
What is the formula for total surplus/net welfare?
A
Consumer Surplus + Producer Surplus = Total Surplus
6
Q
Perfectly elastic demand means…
A
there is no consumer surplus
7
Q
Perfectly inelastic demand means…
A
that consumer surplus is infinite
8
Q
The more inelastic demand…
A
the higher consumer surplus
9
Q
When supply is perfectly elastic…
A
producer surplus is 0
10
Q
When it is perfectly inelastic….
A
Producer surplus is infinite.
11
Q
The more inelastic supply…
A
the higher producer surplus is likely to be
