How does elasticity effect consumer surplus and producer surplus? Ex. If the equilibrium price is elastic...

How does elasticity effect consumer surplus and producer surplus? Ex. If the equilibrium price is elastic and equilibrium demand is inelastic

Expert Solution

Elasticity is the measurement of the percentage change of one economic variable in response to a change in another.When the value of elasticity is greater than 1, it means that the demand for the good or service is affected by the price. A value that is less than 1 suggests that the demand is insensitive to price, or inelastic. Inelastic means that when the price goes up, consumers’ buying habits stay about the same, and when the price goes down, consumers’ buying habits also remain unchanged.If elasticity is zero it is known as perfectly inelastic. If elasticity = 0, then it is said to be 'perfectly' inelastic, meaning its demand will remain unchanged at any price.

Consumer Surplus is the difference between the price that consumers pay and the price that they are willing to pay.

Producer Surplus is the difference between the price a firm receives and the price it would be willing to sell it at.

Consumer surplus for a product is zero when the demand for the product is perfectly elastic.In such cases sellers will increase their prices to convert the consumer surplus to the producer surplus.Aso with the elastic demand the small change in price will result in a large change in demand.

Price elasticity of supply is inversely related to producer surplus.If supply is completely elastic then it is drawn as horizontal line and producer surplus is zero. If supply is completely inelastic then it is drawn as vertical line and producer surplus is infinite.

Example: If the price is elastic and demand is inelastic it means even a large change in price doesnt affect the demand of the commodity. It is majorly the case of necessities that even if the price will go up then people do buy commodities at that price. However they do try to find the substitues for that good that are available at comparitively low prices.

Rahul Sunny answered 1 year ago

What is consumer surplus? How does it relate to market equilibrium? What is the producer surplus?...

What is consumer surplus? How does it relate to market equilibrium? What is the producer surplus? How does it relate to market equilibrium? What is a deadweight loss (DWL)? How does a tax increase affect both the buyer and seller? How is it related to DWL?

1. Define consumer surplus and producer surplus. Explain why the equilibrium price and quantity maximizes the...

1. Define consumer surplus and producer surplus. Explain why the equilibrium price and quantity maximizes the sum of producer plus consumer surplus (the total surplus). 2. There are far more consumers of agricultural commodities than there are producers; but agricultural producers have consistently been able to get Congress to vote them subsidies at taxpayer expense and supply restrictions at the consumer's expense. How can the success of the agricultural lobby be explained by “the general rule of political economy”?

2. Consumer Surplus and Producer Surplus Explain in words and graphically how consumer surplus, producer surplus...

2. Consumer Surplus and Producer Surplus Explain in words and graphically how consumer surplus, producer surplus and total surplus change when the minimum wage is removed. Assume the minimum wage is above the free market price. In your explanation please interpret the components of the changes in consumer surplus, producer surplus and total surplus; i.e. what each component represents. For additional points, what happens if the minimum wage is set below the free market price? please graph

When prices rise above equilibrium: A. producer surplus falls and consumer surplus rises. B. producer surplus...

When prices rise above equilibrium: A. producer surplus falls and consumer surplus rises. B. producer surplus falls and it is uncertain what happens to consumer surplus. C. consumer surplus falls and it is uncertain what happens to producer surplus. D. producer surplus falls and consumer surplus falls. Say which answer choice it is and why.

Explain what is consumer surplus, producer surplus and total surplus. Show graphically how a price floor...

Explain what is consumer surplus, producer surplus and total surplus. Show graphically how a price floor reduces total surplus.

1. how does the concept of consumer surplus and producer surplus relate to market failure from...

1. how does the concept of consumer surplus and producer surplus relate to market failure from an economic perspectice? How do demand-side failures and supply-side failures result in equilibrium points that are not optimal for society? 2. During week 2, the quantity demanded of hot dog buns at a price of $1.20 increased from 100 units in week 1 to 120 units during the week 2 when hot dogs sold at $1.89 rather than $2.29. The next time hot dogs...

Describe the effects (changes in quantity, price, consumer surplus, and producer surplus) of a product ban...

Describe the effects (changes in quantity, price, consumer surplus, and producer surplus) of a product ban on asbestos insulation in each of the following markets: a. Market for Asbestos Insulation b. Market for Asbestos Fiber c. (6 points) Market for Asbestos Clothing d. Assuming the above are the only markets impacted by the ban on asbestos insulation, what is the Total Cost to society? e. Explain how you would determine if there is a Net Benefit or a Net Cost...

Consumer Surplus. Producer Surplus. Total Surplus. How are these concepts used to explain welfare economics? How...

Consumer Surplus. Producer Surplus. Total Surplus. How are these concepts used to explain welfare economics? How are these concepts used to explain the benefits of trade? How are these concepts used to explain why restricting trade reduces societal wellbeing?

Define Consumer surplus, Producer surplus and Deadweight loss.

Consumer surplus. Producer surplus. Government intervention 1. If the price of a good rises while demand...

Consumer surplus. Producer surplus. Government intervention 1. If the price of a good rises while demand remains unchanged, then total consumer surplus will _________. Decrease Increase Remain unchanged We can’t say 2. Aisha is willing to spend $15 for a haircut. If she finds a salon where the price of a haircut is only $10, she will receive ______ in consumer surplus from this transaction. $ 15 $ 5 $ 10 $ 0 3. Natasha, Nelson, and Nikolai are all...

Question