Which of the following statements is true? a. Consumer surplus represents the total net benefit to...

Which of the following statements is true?

a. Consumer surplus represents the total net benefit to producers from participating in the market.

b. Producer surplus represents the total net benefit to consumers from participating in the market.

c. The producer surplus for the first unit of output produced and sold is equal to the price minus the maximum willingness to pay.

d. The consumer surplus for the first unit of output purchased and consumed is equal to the minimum willingness to accept minus price.

e. Deadweight loss is the reduction in economic surplus resulting from a market not being in equilibrium.

Solutions

Expert Solution

Answer 1- A. This statement is false. Consumer surplus represents the difference between the consumers wish to pay and the amount of money that they actually end up paying or the market price. It is represented by the area above the price line and below the demand curve. Thus, it is a net benefit received by the consumer.

B. This statement is False. Producer surplus represent that difference between the amount the procuder actually receives for the good and the minimum amount at which the producer will sell the good for. It is represented by the difference between the price line and the supply curve. Thus, it is the net benefit received by the procer and not the consumer.

C. The given statement is False. Producer surplus for the first unit is the difference between the price level and the minimum amount the sellers are ready to accept for such good or service.

D. The statement is False. Consumer surplus is the difference between the amount of price level and the maximum amount that the consumers can pay for such good or service.

E. The statement is True.Dead weight occurs when there is a fall or downfall in the surplus due to any inefficiency in the economy and thus the market is not in equilibrium or it is not possible to be at equilibrium. It may be also due to bad allocation of taxes by the government.

Rahul Sunny answered 1 year ago

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