Micro Chapter 5 Consumer and Producer Surplus

Where are producer surplus consumer surplus on this graph

Consumer surplus: Blue

Producer surplus Red

What is consumer surplus?

Consumers are willing to pay more than they end up paying

What is producer surplus?

Producers sell for more than what they would’ve sold the product for

If price is above equillibrium there is a_______. If price is below equillibrium there is a______. (Shortage and surplus)

Surplus, Shortage

If supply and demand shift either the price or the quanitity is _________.

Inderminate/Ambiguous

Price Ceiling

Limits the price of a good. If it is below the equillibrium it causes a shortage because there aren’t enough suppliers for a good. Consumers will have an increased consumer surplus and producers surplus will decrease and there will be dead weight loss from transactions that wont occur. If the ceiling is below the equillibrium nothing happens.

Price Floor

Keeps prices artificially high causing a surplus. Increases producer surplus while decreasing consumer surplus and increasing deadweight loss when above the equillibrium. When Below the equillibrium it does nothing.

Dead Weight loss

Transactions that don’t occur because of government intervention such as excise taxes, price ceilings and price floors.

Excise Taxes

Amount charged for every unit at every quantity raising the curve by the amount taxed.

Tax revenue equation

Tax multiplied by the quantity at the new equillibrium.

Match Each Color to Proper name including unshaded triangle.

Green: Consumer Surplus, Purple: Tax Revenue, Pink: Producer Surplus, Unshaded: Deadweight Loss

How to find how much consumers vs. producers pay for tax.

The amount the equillibrium price increased is paid for by consumers the other amount is payed by producers.