Understanding Producer and Consumer Surplus

Which area on a standard supply and demand graph represents consumer surplus?

• The area below the supply curve and above the price

• The area above the demand curve and below the price

• The area above the price and below the demand curve

• The area below the price and above the supply curve

What does producer surplus represent in a market?

• The difference between what producers are paid and the minimum they are willing to accept

• The total revenue received by producers

• The cost of production for all producers

• The maximum price consumers are willing to pay

If the market price increases, what happens to producer surplus, all else being equal?

• It decreases

• It remains unchanged

• It increases

• It becomes zero

On a supply and demand diagram, where is the equilibrium price found?

• Where the supply curve meets the vertical axis

• Where the demand curve meets the horizontal axis

• Where the supply and demand curves intersect

• Where the price is at its maximum

If the government sets a price ceiling below the equilibrium price, what is the likely effect on consumer surplus?

• It decreases

• It increases

• It remains the same

• It becomes negative

Which of the following best describes the graphical representation of producer surplus?

• The area above the supply curve and below the price, up to the quantity sold

• The area below the demand curve and above the price, up to the quantity sold

• The area below the supply curve and above the price, up to the quantity sold

• The area above the demand curve and below the price, up to the quantity sold

If the price of a good falls below the equilibrium price, what happens to consumer surplus?

• It decreases

• It increases

• It stays the same

• It becomes zero

Which equation correctly calculates consumer surplus?

A decrease in supply, with demand unchanged, will have what effect on producer surplus?

• It will always increase

• It will always decrease

• It may increase or decrease depending on the magnitude of the price change

• It will remain unchanged

If a new tax is imposed on a good, what is the likely effect on total surplus (consumer plus producer surplus)?

• It increases

• It decreases

• It remains the same

• It becomes negative