Chapter 4

How does the consumer surplus change as the equilibrium price of a good rises or falls?

As the price of a good rises, consumer surplus decreases, and as the price of a good falls, consumer surplus increases.

How does producer surplus change as the equilibrium price of a good rises or falls?

As the price of a good rises, producer surplus increases, and as the prices of a good falls, producer surplus decreases.

Why is the supply curve referred to as marginal cost curve?

It shows he willingness of firms to supply a product at different prices.

Why is the demand curve referee to as a marginal benefit curve?

It shows the willingness of consumers to purchase a product at different prices.

Marginal benefit

The additional benefit from consuming one more unit.

Marginal cost

The additional cost of producing one more unit.

Consumer surplus

The difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Producer surplus

The difference between the lowest price a firm would be willing to accept and the price it actually receives.