Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Expert Solution
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Step 1
Consumer Surplus:
What the consumer wants to pay and what she actual pay, the difference between both is known as consumer surplus (CS). Mathematically,
CS =Maximum willingness to pay –Actual pay.
Producer surplus:
When one subtracts the prices that the producer is willing to accept for supplying his goods and services and the actual price he actually received by customers, will give us producer surplus (PS).
PS =Minimum price that producer/firm is willing to accept – Actual Price they get.
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