Question

A mutually beneficial voluntary trade will result in

A. consumer surplus

B. producer surplus

C. gains from trade

D. all of the above

2. Consumer surplus is

A. the difference between the demand curve and the price of the good

B. the difference between the supply curve and the price of the good

C. the difference between the demand curve and the supply curve

D. the difference between the price consumers pay and the cost of making the good

E. the difference between the demand curve and the equilibrium price

Answer 1

1. Option D.

• A mutually beneficial voluntary trade refers to the grains from trade that benefits both the agents who are involved in the trade.
• That is, a voluntary trade benefits both the producers and consumers and hence leads to producer and consumer surplus.

2. Option E.

• Consumer surplus show's the willingness of a consumer to pay for a good that exceeds the actual price of the product.
• This willingness to pay is illustrated by the demand curve while the actual price of the product is the equilibrium market price.
• Hence, consumer surplus is the difference between the demand curve and the equilibrium price.