E Page(s) 110-116 4.1.What are consumer surplus and producer surplus? Explain ho
ID: 1161242 • Letter: E
Question
E Page(s) 110-116 4.1.What are consumer surplus and producer surplus? Explain how consumer and producer surplus affect economic well-being. When the price of a good or service isenough, it will encourage consumers to buy. However Drog wordis) below to illin the blankis) in the passage. the price also has to beenough to encourage producers to sell. In this way, both parties benefit from the sale. In order to calculate producer surplus, sellers must understand their direct costs and their costs, while consumers must consider their place on a particular good or service E price based on the value they reservationhighlow opportunity realminimumExplanation / Answer
Consumer surplus is the difference between the maximum willingness to pay and the price paid by the consumers. In other words difference between reservation price of the consumer and actual price is consumer surplus. This is the area below the demand curve and above the price of the good.
Producer surplus : it is the difference between the price of the good and minimum acceptable price of the good. The area above the supply curve and below the price is called producer surplus.
When the price of a good or services is low enough, it will encourage tthe consumers to buy. However, the peice also has to be high enough to encourage producers to sell.
In this way, both parties benefit from the sale. In order to calculate producer surplus, sellers must understand their direct costs and their opportunity costs, while consumers must consider their reservation price based on they place on a particular ggood or service.
Explaination:
It is so because the consumers are always encourage to buy goods when prices are low ( as law of demand says). Whereas email producers are always encourage to sell goods when prices are high ( as law of supply says).
Sellers consider both the implicit and explicit cost while calculating the economic cost.
Implicit cost is the opportunity cost and ecplexpl cost is the direct cost.
And consumers must consider the reservation price because if the price of the good is higher than the reservation price of the consumers, then he/she will not buy the good.
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