Consumer; Producer Surplus and Deadweight loss

Neeti Patel

What is consumer and producer surplus

• Consumer surplus– is the difference between the price a buyer

wants to pay and what they actually pay

• Producer surplus – is the difference between what the firm could

pay to provide a good or service and what they due pay

Supply and Demand

What is dead weight loss?

• Dead weight loss – is when a firm and/or market is not producing

at allocative efficiency, it can occur if a firm is producing above or below allocative efficiency and depending on that you will either get a decrease in consumer or producer surplus.

Result of a shift in Supply

Related Topics:

• Consumer, Producer Surplus and Deadweight Loss exists in every market structure (oligopoly, monopoly, perfect competition, etc. ), but it is most closely related to Utility and Elasticity

2003 (Form B) question 2 http://www.luhsd.k12.ca.us/staff/bcolbert/AP%20Econ%20Info/aap03_freeresponse_b.pdfa. (i) correct answer is domestic supply and quantity 1; because on

the graph there are multiple quantity and only one price, there are other prices there but the are not in reference to what we are looking for (ii) consumer surplus is located under the supply curve and above the price (iii) producer surplus is located above the demand curve and below the price

b. (i) It’s a world price, it acts as a price ceiling so suppliers are not allowed to charge more than Pw therefore suppliers buy goods at Q1 and demanders will buy at Q5.

c. (i) The graph shows that suppliers are producing at Q2 instead of Q1, so subtract Q2 – Q1 (ii) demanders are purchasing at Q4 instead of Q5 so subtract Q5 – Q4 (iii) consumer surplus is located under the demand curve and above the Price (iv) producer surplus is located above the supply curve and below the Price

Question 1

Question 2

Question 3

Answers

3. A

5. B

9. C

http://www.reffonomics.com/TRB/chapter4/supplyanddemandunittest1revised.pdf