Chapter 4- Producer and consumer surplus

Consumer surplus

The difference between the amount that consumers are willing and able to pay for a good and the amount they actually pay for it

How does consumer surplus change when supply shifts inwards

Consumer surplus decreases

How does consumer surplus change when demand shifts outwards

Consumer surplus increases

What is the consumer surplus when the PED is inelastic

High level of consumer surplus

What is the consumer surplus when PED is elastic

Level of consumer surplus is low

What happens to the producer surplus when demand increases

The producer surplus increases

Utility

The measure of satisfaction that we get from purchasing and consuming a good or service

Marginal utility

The change in satisfaction from consuming an extra unit

How to calculate marginal utility

Total utility/ difference in quantity consumer

Why is there diminishing utility

As more units are consumed, level of satisfaction drops each time