Consumer and producer surplus (3)

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1.

Question 1: Define producer surplus and explain how it can be illustrated graphically. Discuss two factors that might affect the size of producer surplus.

2.

The government introduces a price ceiling on a particular good. Using supply and demand diagrams, explain the likely consequences of this policy for both consumer surplus and producer surplus. Discuss the potential benefits and drawbacks of price ceilings.

3.

Question 1

The diagram below shows the supply and demand curves for a particular product. Supply and Demand Diagram A change in consumer surplus is illustrated.

(a) Explain, using the diagram, how a change in demand can cause a change in consumer surplus.

(b) Discuss the factors that might cause a change in demand for this product.

(c) Using the diagram, show how a change in consumer surplus is related to a change in producer surplus.