Consumer and Producer surplus 1.2.8

What is consumer surplus?

Measures the economic benefit or gain that consumers receive when they can buy a product or service at a price that is lower than the maximum price they are willing to pay.

What is the effect of higher supply costs on consumer surplus?

Leads to a rise in market price and therefore a decrease in consumer surplus

What happens to consumer surplus when market demand increases?

Consumer surplus rises

What happens to consumer surplus when demand is inelastic?

There is a greater potential consumer surplus because there are some buyers willing to pay a high price to continue consuming the product.

How can a business turn consumer surplus into producer surplus?

If a business can identify groups of consumers within their market who are willing and able to pay different prices for the same product, then sellers use price discrimination.

What is producer surplus?

The difference between the price producers are willing and able to supply a product for and the price they receive in the market.