Surplus MCQ 1

Consumer Surplus

• Consumer surplus is the difference between what a consumer actually pays for a good/service and what they would be willing to pay, rather than do without it.

Calculating Consumer Surplus

• The consumer surplus is calculated by finding the difference between what a consumer is willing to pay and what they actually pay.
• Example: a customer willing to pay €50 but gets the good for €30 has a consumer surplus of €20.
• To find the total consumer surplus, the area of the shaded triangle is calculated.

Total Consumer Surplus

• In the example, the total consumer surplus is €450.

Real-World Applications

Concert Venue Example

• A concert venue owner can increase revenue and profits by selling tickets at different prices for the same event.
• By offering something extra (e.g. meet and greet, VIP package), the venue owner can extract the consumer surplus (e.g. €30) and increase profits.

Airlines Example

• Airlines can charge passengers different prices for the same flight by offering extra services.
• By offering extras (e.g. advance seat selection, priority boarding, access to a lounge), airlines can extract the consumer surplus from passengers willing to pay more.

Producer Surplus

• Producer surplus is the difference between the minimum acceptable price and the actual market price received by the seller.
• It represents the benefit or profit gained by the producer from selling a good or service at the market price.
• Example: the seller would have accepted €10 for the tenth unit, but received €30, resulting in a producer surplus of €20 on that unit.
• Another example: the seller would have accepted €20 for the twentieth unit, but received €30, resulting in a producer surplus of €10 on that unit.
• Total producer surplus is calculated by finding the area of the shaded triangle on the supply and demand curve graph.
• In this case, the total producer surplus is €450.