Question

identify whether each of the following statements best illustrates the concept of consumer surplus, producer surplus, or neither. statement consumer surplus producer surplus neither yesterday i paid $51 for a crew neck. today, the same store is selling crew necks for $45. i sold a used record for $43, even though i was willing to accept as little as $36 in exchange for it. even though i was willing to pay as much as $55 for a swimsuit, i bought a swimsuit for just $47.

Answer 1

Consumer surplus occurs when consumers pay less than what they're willing to pay, and producer surplus happens when producers receive more than the minimum they're willing to accept.

The first statement is an example of consumer surplus and the second of producer surplus, while the third does not illustrate either concept as it discusses a price change after the transaction.

Step-by-step explanation:

Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay, while producer surplus is the difference between what producers are willing to accept for a good and what they actually receive. Examining the given statements:

• Consumer surplus: 'I was willing to pay as much as $55 for a swimsuit, but I bought it for just $47.' The consumer surplus here is $8.
• Producer surplus: 'I sold a used record for $43, even though I was willing to accept as little as $36.' The producer surplus in this case is $7.
• Neither: 'Yesterday I paid $51 for a crew neck. Today, the same store is selling crew necks for $45.' This statement does not clearly indicate a surplus since it is reflecting on a price change after purchase, not the surplus at the time of the transaction.

Consumer surplus and producer surplus are two components that, when added together, give us the total economic welfare or social surplus created in a market.