Consumer and Producer Surplus

At quantity Q1, how much money would producers need to receive in order to produce?

• Price d

• Price c

• Price Pe

• Price b

• Price a

Answer explanation

Notice at Q1, the Supply Curve will show price b.

At quantity Q1, how much would consumers be willing to pay for the product?

• Price d

• Price c

• Price Pe

• Price b

• Price a

Answer explanation

Notice at Q1, the Demand Curve will show price c.

Is Q1 an efficient output level? Explain.

What would you expect to happen to price and quantity at output level, Q1? Explain.

At the price of Pe, identify the area of consumer surplus. Include all the sections.

Answer explanation

Consumer surplus is the area between the demand curve, the price people are willing to pay, and the price they actually pay.

At the price of Pe, identify the area of producer surplus. Include all the sections.

Answer explanation

Producer surplus is the area between the supply curve, the price producers are willing to supply, and the price they actually receive.

Identify all the areas that represent consumer surplus before the tax.

Answer explanation

Consumer surplus is the area between the Demand Curve and the price that consumers actually paid.

Identify all the areas that represent producer surplus before the tax.

Answer explanation

Producer surplus is the area between the Supply Curve and the price that producers actually receive.

Identify all the areas that represent the tax revenue received by the government. (Mark all that are correct.)

• B

• C

• D

• E

Answer explanation

Tax revenue is the tax (the difference between the two supply curves) times the new quantity sold.

Identify all the areas that represent producer surplus after the tax. (Mark all that are correct.)

• A

• B

• C

• D

• F

Answer explanation

Producer surplus is the area between the Supply Curve and the price that producers actually receive. Although the tax increases the price, the producers are not receiving all of that new price.