Consumer and producer surplus

Question 1

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

Consumer and producer surplus

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.