Question

Question. Calculate consumer surplus and producer surplus, and describe what they mean. Try these problems: 5, 9

Short answer

Answer:

The difference between consumers' willingness to pay based on their preferences and the market equilibrium price is known as consumer surplus. The difference between the highest price a consumer is prepared to pay and the market price is known as producer surplus.

Step-by-step solution

Consumer Surplus:

The difference between the price consumers is willing to pay based on their preferences, and the market equilibrium price is known as consumer surplus. Economists use graphs to examine and measure the positive sensation you receive when you obtain a good deal. It's known as consumer surplus, the difference between the maximum price you'd be willing to pay and the price you paid for anything. The reward or happy feeling of getting a good deal is known as consumer surplus.

The area of a triangle below a demand curve and above the observed price is used to calculate it.

Producer Surplus:

The difference between the highest price a consumer is prepared to pay and the market price is known as producer surplus. The difference between the market price and the lowest price a producer is willing to take to create goods is known as the producer surplus. Producers gain value from exchanges is referred to as "producer surplus." The difference between the highest price a consumer is prepared to pay and the market price is known as producer surplus.

The benefit to sellers of participating in a market is measured by producer surplus. The area of a triangle above a demand curve and below the observed price is used to calculate it.