Question

explain the implications of the consumer surplus and producer surplus on economic welfare

Answer 1

First of all let's discuss economic welfare.

• It is a measure of how well the welfare performs according to the changes of policies and programs.
• It indicates the gain and loss of market participants from changes in the economic policies and programs.

There are 2 concepts in economic welfare

• Consumer surplus
• Producer surplus

A consumer surplus is something related to market from the consumer point of view. The consumer surplus may be defined as "The difference between an individuals willingness to pay and how much he/she paid actually "

CONSUMER SURPLUS = Willingness to pay - Actual pay

When it comes to Producer surplus it is about producers point of view, It may be defined as the "amount received by the producer - cost for production"

These two factors play a key role in economic welfare for the better economic growth.

It grows a line between the producer and consumer indicating how happy both the parties are.

If both consumer surplus and producer surplus are in range of zero indicates the natural deal between the producer and consumer being equally happy.

Hope this helps

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