Theme 1.2.8 Flashcards
Define consumer surplus
The difference between the price consumers are willing and able to pay for a good/service and the price they actually pay for
Define producer surplus
The difference between the price producers are willing and able to supply a good/service for and the price they actually receive
Where is the consumer surplus located?
Below the demand curve & above the price line
Where is the producer surplus located?
Above the supply curve and below the price line
Formula for society surplus
CS + PS
How does a decrease in price affect the level of consumer surplus
Increases it- as the price consumers are willing and able to pay is greater than the price they actually pay
How does an increase in price affect the level of consumer surplus
Decreases it.
As the price consumers are willing and are able to pay is less than the price they actually pay
What happens to quantity when prices increase (CS)
Increases
What happens to quantity when prices increase (PS)
Increases
What happens to quantity when prices decrease
Decreases
How does an increase in price affect the level of producer surplus
Increases it
How does an decrease in price affect the level of producer surplus
Decreases it
