3d. Consumer and producer surplus

Diminishing marginal utility

As you consume more of a good, the marginal utility from each extra unit will decrease.

E.g. as you eat more cupcakes, the marginal benefit of the next cupcake goes down each time as you become less hungry

Marginal utility

The additional benefit received from consuming an extra unit of a good.

Consumer surplus

The difference between what consumers are willing to pay and what they actually pay.

Producer surplus

The difference between what producers are willing to sell for and what they actually sell for.

Draw a diagram showing consumer surplus.

To score full marks in your exam, make sure your diagram includes ALL of the following (you will lose marks if you miss any of these out): 

\- Labelled axes (P and Q) 

\- Labelled curves (S and D) 

\- Equilibrium price (Pe) 

\- Equilibrium quantity (Qe) 

\- Consumer surplus shaded in 

\- Consumer surplus labelled or a key provided (as below) 

Draw a diagram showing producer surplus.

To score full marks in your exam, make sure your diagram includes ALL of the following (you will lose marks if you miss any of these out): 

\- Labelled axes (P and Q) 

\- Labelled curves (S and D) 

\- Equilibrium price (Pe) 

\- Equilibrium quantity (Qe) 

\- Producer surplus shaded in 

\- Producer surplus labelled or a key provided (as below) 

A nuclear power plant implodes, destroying a local strawberry field. Sketch a diagram to show the effect of the implosion on consumer surplus in the strawberry market.

Supply of strawberries will decrease if a local strawberry field is destroyed.

To score full marks in your exam, make sure your diagram includes ALL of the following (you will lose marks if you miss any of these out): 

\- Labelled axes (P and Q) 

\- Labelled curves (S and D) 

\- Equilibrium price (Pe) 

\- Equilibrium quantity (Qe) 

\- New supply curve, S1 shifted in, to the left

\- Arrows showing direction of shift from S to S1

\- New price (P1)

\- New quantity (Q1) 

\- Change in consumer surplus shaded in 

\- Change in consumer surplus labelled or a key provided (as below) 

Terrorist attacks in Turkey have scared away prospective tourists from booking plane flights to Turkey. Sketch a diagram to show the effect of the terrorist attacks on producer surplus in the market for plane flights.

Demand for plane flights will decrease if consumers are worried about flying to Turkey, due to the recent terrorist attacks. 

To score full marks in your exam, make sure your diagram includes ALL of the following (you will lose marks if you miss any of these out): 

\- Labelled axes (P and Q) 

\- Labelled curves (S and D) 

\- Equilibrium price (Pe) 

\- Equilibrium quantity (Qe) 

\- New demand curve, D1 shifted in, to the left

\- Arrows showing direction of shift from D to D1

\- New price (P1)

\- New quantity (Q1) 

\- Change in producer surplus shaded in 

\- Change in producer surplus labelled or a key provided (as below)