Consumer and Producer Surplus: Understanding the Net Gains for Buyers and Sellers - Prof. , Study notes of Microeconomics

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Week 7

Cong / Shirley

Consumer Surplus

• It’s the net gain to buyers from the purchase of a good.
• Individual Consumer Surplus = Buyer’s willingness to pay — the actual price paid

Buyer’s willingness to pay is defined as the maximum price at which he would buy a good

• Total consumer surplus is the sum of all potential consumers’ surpluses
• How changing prices affect consumer surplus?

Q1. Jeanette is willing to pay $120 for the first

pair of shoes, $90 for the second pair, $50 for

the third, and $20 for the fourth. If shoes cost

$60, Jeanette will buy ________ pairs of shoes

and her total consumer surplus equals

________.

a. 3; $

b. 2; $

c. 2; $

d. 3; $

Q2. Golden lists his old Lionel electric trains on

eBay. He sets a minimum acceptable price,

known as his reserve price of $75. After five

days of bidding, the final high bid is $90, the

producer surplus is:

a. $

b. $

c. $

d. $

Q4. When the price of milk goes up (an input in

the production of cheese) the _________

surplus in the market for cheese _______.

a. consumer; decrease

b. producer; decrease

c. producer; increase

d. consumer; increase

Q5. Raisin bran and milk are complements. An increase in the price of raisins will

a. increase consumer surplus in the market for raisin bran and decrease producer surplus in the market for milk.

b. increase consumer surplus in the market for raisin bran and increase producer surplus in the market for milk.

c. decrease consumer surplus in the market for raisin bran and increase producer surplus in the market for milk.

d. decrease consumer surplus in the market for raisin bran and decrease producer surplus in the market for milk.