Worksheet 6
2.3 Consumer, Producer and Community Surplus
1)
2)
Fill in the missing word: In mainstream economics, it is assumed
consumers/households
[1 mark]
Fill in the missing word: In mainstream economics, it is assumed
producers/firms
[1 mark]
Diagram 1
Diagram 2
S = MC
A
P1
B
D = MB
Quantity
3)
With reference to Diagram 1, correctly label the area A, B, and A+B.
[3 marks]
..
4)
Define the term identified as area A in Question 3 above.
[2 marks]
5)
Define the term identified as area B in Question 3 above.
[2 marks]
6)
Explain the term identified as area A+B in Question 3 above.
[2 marks]
7)
The following tasks refer to Diagram 2 above, which requires you to redraw Diagram 1.
a)
Sketch and label a new curve to show a reduction in costs of production.
b)
Illustrate how area A will change as a result of this new curve.
8
In Diagram 1, supply is also labelled MC and demand also labelled MB .
a)
Define the term marginal cost (MC).
[2 marks]
b)
Define the term marginal benefit (MB).
[2 marks]
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[2 marks]
[1 mark]
Worksheet 6
2.3 Consumer, Producer and Community Surplus
Answers
1)
2)
Fill in the missing word: In mainstream economics, it is assumed
consumers/households
Utility
[1 mark]
Fill in the missing word: In mainstream economics, it is assumed
producers/firms
Profit
[1 mark]
Diagram 2
Diagram 1
S1
S = MC
A
A
P1
S2
P1
B
P2
D
D = MB
Quantity
Q1
3)
With reference to Diagram 1, correctly label the area A, B, and A+B.
A = Consumer surplus
4)
Q2
B = Producer surplus
Quantity
[3 marks]
A+B = Community (social) surplus
Define the term identified as area A in Question 3 above.
[2 marks]
Consumer surplus represents the benefit gained by consumers from purchasing a good or
service at a price lower than they were willing to pay.
(Award 1 mark for a vague response. Award 2 marks for a clear and accurate definition).
5)
Define the term identified as area B in Question 3 above.
[2 marks]
Producer surplus is the difference between the price received by firms and the (lower) price
they were willing to accept.
(Award 1 mark for a vague response. Award 2 marks for a clear and accurate definition).
6)
Explain the term identified as area A+B in Question 3 above.
[2 marks]
Community surplus (or social surplus) is the sum of consumer and producer surplus. In a
simplified model, an economy consists of just consumers and producers hence combined
they represent the community. This provides a theoretical insight to welfare and efficiency.
(Award 1 mark for a vague response. Award 2 marks for a clear and accurate explanation).
7)
The following tasks refer to Diagram 2 above, which requires you to redraw Diagram 1.
a)
Sketch and label a new curve to show a reduction in costs of production.
[2 marks]
(Award 1 mark for showing an increase in supply, S1S2 and 1 mark for the label).
b)
Illustrate how area A will change as a result of this new curve.
A rise in area A (shown by green shaded area). Award 1 mark for the answer.
8)
In Diagram 1, supply is also labelled MC and demand also labelled MB .
a)
Define the term marginal cost (MC).
[2 marks]
The additional cost of an increase in output; the cost of producing one more unit of output.
(Award 1 mark for a vague answer. Award 2 marks for a clear and accurate definition).
b)
Define the term marginal benefit (MB).
[1 mark]
[2 marks]
The additional benefit from an increase in production; the benefit of consuming one more
unit of output.
(Award 1 mark for a vague answer. Award 2 marks for a clear and accurate definition).
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