Multiple Choice
To determine a product's selling price based on maximizing consumer surplus, which of the following should a firm primarily consider?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
Refer to Figure 7-9. At equilibrium, producer surplus is represented by the area:
A
between the demand curve and the equilibrium price, up to the quantity sold
B
above the demand curve and below the supply curve
C
below the supply curve and above the equilibrium price
D
between the supply curve and the equilibrium price, up to the quantity sold
Verified step by step guidance1
Recall that producer surplus is the difference between what producers are willing to accept for a good (represented by the supply curve) and what they actually receive (the market price).
Identify the equilibrium price and quantity where the supply and demand curves intersect in the figure.
Understand that the supply curve shows the minimum price producers are willing to accept for each quantity, so the area below the supply curve represents these minimum acceptable prices.
Recognize that producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity sold.
Therefore, the producer surplus is the area between the supply curve and the equilibrium price line, extending from zero to the equilibrium quantity.
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