Question

Define the concepts of “ consumer’s surplus” and “producer’s surplus” and explain the differences by giving examples

use your own word ( 200 words )

Answer 1

Consumer surplus is nothing but the difference between the maximum amount that the customer is willing to pay and the market price. Producer surplus differs from consumer surplus because of the fact that producer surplus is the difference between the market price and the minimum price that the producer is willing to accept. The word surplus is used because it is actually synonymous with profit. consumer surplus indicates the profit or the benefit customer is receiving and it is it is used to calculate the total benefit that a customer enjoys. On the other hand producer surplus tells about the benefit that the producer receives on selling a good. it is both the consumer surplus as well as the producer surplus which act together to give the economic surplus. For instance if a consumer is pays $5 where the maximum amount he is willing to pay is $10. That the consumer surplus per unit is $5. Similarly if a producer can accept $4 and the market price is $5 that the producer surplus is $1. usually through the form of price discrimination and other strategy is the producer usually tries to capture all the consumer surplus to generate more profits. such practices also happen in competitive markets where the producer behaves according to capture the consumer surplus to attain more profit.