1.2.8 - Consumer and Producer surplus Flashcards
(23 cards)
What is consumer surplus?
The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually pay.
What does consumer surplus represent?
The benefit that consumers get from consuming the product.
How is consumer surplus visualized on a graph?
It is the area above market price and below the demand curve.
What is the relationship between consumer surplus and the law of diminishing marginal utility?
Consumer surplus generally declines with extra units consumed due to diminishing marginal utility.
Why do inelastic demand curves result in a larger consumer surplus?
Because consumers are willing to pay a much higher price to consume the good.
Fill in the blank: Consumer surplus is shown by the area ______.
above market price and below the demand curve.
What is indicated by the demand curve regarding consumer surplus?
The total amount that consumers are willing and able to pay for a good or service.
Describe the net gain to the consumer when paying price PI.
The net gain is represented by the area PI,X,Y, which is the shaded triangle.
What happens to consumer willingness to pay for extra units as consumption increases?
Consumers are willing to pay less for extra units due to diminishing marginal utility.
What does the area O,X,Y,QI represent?
The total benefit to the consumer.
What happens to consumer surplus when demand shifts from DI to D2?
Consumer surplus increases from PRQ to ACB
A right shift in demand indicates that consumers perceive greater utility from the good.
What effect does a left shift in demand have on consumer surplus?
Consumer surplus decreases
A left shift indicates that consumers perceive less utility from the good.
What causes a left shift in supply?
Higher costs of production
This shift results in an increase in market price.
What is the effect of a left shift in supply on consumer surplus?
Consumer surplus decreases from PQR to ABR
Consumers pay more and receive less utility for their money.
What happens to consumer surplus when supply shifts to the right?
Consumer surplus increases
This is because lower prices lead to greater utility for consumers.
Fill in the blank: A right shift in demand indicates that consumers perceive greater _______.
utility
True or False: A left shift in demand indicates that consumers are willing to pay more for the good.
False
A left shift suggests consumers perceive less utility, leading to decreased willingness to pay.
What is the relationship between market price and consumer surplus when supply shifts to the left?
Market price increases and consumer surplus decreases
What is producer surplus?
The difference between what producers are willing and able to supply a good for and the price they actually receive.
It is indicated by the supply curve and shown by the area above the supply curve and below the market price.
How is the level of producer surplus represented on a graph?
By the area above the supply curve and below the market price.
This area indicates the benefit that producers receive from producing a product.
How can a right shift in supply lead to an increase in producer surplus?
A shift in the supply curve from S1 to S2, often due to lower average production costs, causes the market price to decrease, resulting in an increase in producer surplus.
What happens to producer surplus when the supply curve shifts left?
Producer surplus decreases.
The relationship between shifts in the supply curve and producer surplus is inverse.
