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Chapter 3: Q.33 (page 78)

What is total surplus? How is it illustrated on a

demand and supply diagram?

Short Answer

Expert verified

Total surplus = consumer surplus + producer surplus.

total surplus also known as economic or social surplus.

Step by step solution

01

Step 1. Concept

A surplus is the excess benefit one receives for buying or selling at the market price, the competitive market price providing a better outcome.

02

.Explanation

Consumer surplus refers to the difference between the price a consumer is willing to pay and the price they must pay.

Similarly, producer surplus refers to the difference between the price a producer is willing to receive and the price they actually receive.

Total surplus also known as economic surplus or social surplus can be obtained by the sum of consumer surplus and producer surplus.

03

Step 3. Graphical representation

Consumer surplus is shown by the area between the demand curve and the equilibrium price. Producer surplus is the area between the equilibrium price and the supply curve. So, the total surplus is the area between the demand curve and the supply curve, adjacent to the y-axis..

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Most popular questions from this chapter

What term would an economist use to describe what happens when a shopper gets a " good deal " on a product?

What is the difference between the supply and

the quantity supplied of a product, say milk? Explain

in words and show the difference on a graph with the

supply curve for milk.

What is producer surplus? How is it illustrated on

a demand and supply diagram?

In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.

a. There have recently been some important cost-saving inventions in the technology for making paint.

b. Paint is lasting longer, so that property owners need not repaint as often.

c. Because of severe hailstorms, many people need to repaint now.

d. The hailstorms damaged several factories that make paint, forcing them to close down for several months.

Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.

a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.

b. The winter is exceptionally cold.

c. A major discovery of new oil is made off the coast of Norway.

d. The economies of some major oil-using nations, like Japan, slow down.

e. A war in the Middle East disrupts oil-pumping schedules.

f. Landlords install additional insulation in buildings.

g. The price of solar energy falls dramatically.

h. Chemical companies invent a new, popular kind of plastic made from oil.
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