7 Consumer and producer surplus

Question 1

Consumer surplus

Answer 1

• difference between the price a consumers are willing and able to pa and the market price
• some consumers are willing and able to pay more than market price
• however we assume they will pay market price therefore payling less

Question 2

Producer surplus

Answer 2

• difference between the price at which producers are willing and able to supply products at market price
• some producers are willing and able to sell for less than market price
• however we assume they will supply at market price and therefore receive more money for products

Question 3

Evaluation of the impact of a change in price on consumer surplus

Answer 3

• as price goes down there will be more consumer surplus however depends on PED
• more inelastic PED the more consumer surplus increases

Question 4

Evaluation of the impact of a change in price on producer surplus

Answer 4

• as price goes down there will be more producer surplus however depends on PES
• more inelastic PES the more producer surplus increases