1.2.8 Consumer and Producer Surplus

Question 1

Define consumer surplus

Answer 1

The difference between the price consumers are willing and able to pay for a good/service and price they actually pay

Question 2

Define producer surplus

Answer 2

The difference between the price producers are willing and able to supply a good or service for and the price they actually receive

Question 3

How does an increase in demand for a good or service Affect Consumer and Producer Surplus?

Answer 3

When demand increases, consumers are willing to pay higher prices for a good.
This leads to an increase in consumer surplus as more people benefit from lower prices.
Producer surplus may also increase as producers can charge higher prices

Question 4

How does a decrease in demand for a good or service Affect Consumer and Producer Surplus?

Answer 4

A decrease in demand may result in lower prices.
Consumer surplus may increase further as more consumers benefit from reduced prices.
Producer surplus decreases as producers receive less for each unit sold.

Question 5

How does an increase in supply for a good or service Affect Consumer and Producer Surplus?

Answer 5

An increase in supply often leads to lower prices.
Consumer surplus increases as consumers benefit from lower prices.
Producer surplus may decrease as prices fall.

Question 6

How does a decrease in supply for a good or service Affect Consumer and Producer Surplus?

Answer 6

A decrease in supply can result in higher prices.
Consumer surplus decreases as consumers pay more for the same quantity.
Producer surplus may increase as they receive higher prices.