MARKETS

Consumer and producer surplus

Question 1

Consumer and producer surplus Look at the graph and select the correct area for the questions that follow.

Which area represents:

1. Consumer surplus at price P.

2. Producer surplus at price P.

3. The loss of consumer surplus if price rises from P to A.

4. The change in producer surplus if price rises to A.

5. The economic welfare to society at price P.

6. The net loss of economic welfare to society if a monopolist enters the market and raises the price from P to A.

Question 2

Using the concepts of consumer and producer surplus evaluate the likely economic effect of a subsidy on school footwear producers.