Question

Identify whether each of the following statements best illustrates the concept of consumer surplus, producer surplus, or neither.

Choices for each

-(a) Consumer Surplus

-(b) Producer Surplus

-(c) Neither

(1) Even though I was willing to pay up to $43 for a used laptop and even though the seller was willing to go as low as $32 in order to sell it, we couldn't reach a deal because the government imposed a price floor of $49 on the sale of laptops.

(2) I sold a jersey sweater for $34, even though I was willing to go as low as $25 in order to sell it.

(3) Even though I was willing to pay up to $49 for a used textbook, I bought a used textbook for only $43.

Answer 1

1. Consumer surplus is the difference between the price that a consumer is willing to pay for a commodity and the actual price he paid for it. Producer surplus is the difference between the price at which he is willing to sell and the price he received from the sale. When a price floor is imposed the consumer’s surplus decrease and the producers surplus increase. The person is willing to pay for a used laptop $43, but due to price floor he compelled to pay $49, then loss to the consumer is $6 if the deal is satisfied. The producer is willing to sell it at $32, thus the producers surplus would be $17 if the deal was settled. But the deal is not settled and hence there is no consumer surplus and producer’s surplus.

Answer: c. neither.

2. The person is willing to sell the jersey sweater at $25, but he actually sold it at a price of $34, then the producer’s surplus is $9.

Answer: b. producer surplus.

3. The person is willing to pay $49 for the used text book, but he gets the same at $43. Then as a consumer he gets a surplus of $6.

Answer: a. Consumer surplus.

1. Consumer surplus is the difference between the price that a consumer is willing to pay for a commodity and the actual price he paid for it. Producer surplus is the difference between the price at which he is willing to sell and the price he received from the sale. When a price floor is imposed the consumer’s surplus decrease and the producers surplus increase. The person is willing to pay for a used laptop $43, but due to price floor he compelled to pay $49, then loss to the consumer is $6 if the deal is satisfied. The producer is willing to sell it at $32, thus the producers surplus would be $17 if the deal was settled. But the deal is not settled and hence there is no consumer surplus and producer’s surplus.

Answer: c. neither.

2. The person is willing to sell the jersey sweater at $25, but he actually sold it at a price of $34, then the producer’s surplus is $9.

Answer: b. producer surplus.

3. The person is willing to pay $49 for the used text book, but he gets the same at $43. Then as a consumer he gets a surplus of $6.

Answer: a. Consumer surplus.