Consumer & Producer Surplus
On a graph, consumer surplus is represented by the area
below the demand curve and above price
A drought in California destroys many red grapes. As a result of the drought, the consumer surplus in the market for red grapes
decreases, and the consumer surplus in the market for red wine decreases.
Raisin bran and milk are complementary goods. A decrease in the price of raisins will
increase consumer surplus in the market for raisin bran and increase producer surplus in the market for milk.
A result of welfare economics is that the equilibrium price of a product is considered to be the best price because it
maximizes the combined welfare of buyers and sellers.
Willingness to pay
measures the value that a buyer places on a good.
Total surplus is
the total value of the good to buyers minus the cost to sellers of providing the good
Which of the following will cause an increase in producer surplus?
the price of a substitute increases
Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will
increase, and producer surplus in the industry will increase.
Suppose Lauren, Leslie and Lydia all purchase bulletin boards for their rooms for $15 each. Lauren's willingness to pay was $35, Leslie's willingness to pay was $25, and Lydia's willingness to pay was $30. Total consumer surplus for these three would be
$45.
Refer to Figure A. Assume demand increases and as a result, equilibrium price increases to $22 and equilibrium quantity increases to 110. The increase in producer surplus due to new producers entering the market would be
$90.
Which of the following will cause an increase in consumer surplus?
a technological improvement in the production of the good
Producer surplus measures the
benefits to sellers of participating in a market
If a consumer places a value of $20 on a particular good and if the price of the good is $25, then the
consumer does not purchase the good.
Efficiency in a market is achieved when
the sum of producer surplus and consumer surplus is maximized.
The marginal seller is the seller
who would leave the market first if the price were any lower, and the marginal buyer is the buyer who would leave the market first if the price were any higher