Question

Which of the following define the total surplus?

a. the difference between amount paid by buyers and amount received by sellers.
b. the difference between value of buyers and amount paid by buyers.
c. the difference between amount received by sellers and cost to sellers.
d. the difference between value of buyers and cost to sellers.

Answer 1

Total surplus is the sum of consumer surplus and producer surplus, reaching its peak at market equilibrium. It serves as an indication of market efficiency, with any deviation resulting in a deadweight loss.

Step-by-step explanation:

The total surplus in an economic context is best defined as the sum of consumer surplus and producer surplus. Consumer surplus refers to the gap between the price that consumers are willing to pay (which is based on their preferences) and the actual market equilibrium price, which is the price at which the quantity demanded by buyers equals the quantity supplied by sellers.

Producer surplus, on the other hand, is the gap between the price at which producers are willing to sell a product (based on their costs) and the market equilibrium price. Both measures are dependent on the efficient functioning of the market. The total surplus is at its maximum when the market is at equilibrium. Furthermore, any deviation from the equilibrium quantity and price leads to a deadweight loss, which represents a loss in total surplus due to the market producing an inefficient quantity.