Quiz 11: Performance and Strategy in Competitive Markets
A) The statement is true. Social welfare is derive from the difference between CS and PS. Consumer surplus is surplus that consumer holds and producer surplus is surplus that producer holds. In competitive market when we find difference between these two, we get net benefits and the benefit that they provide to social welfare. B) The statement is False. Market supply curve indicates at particular price how much units is supplying in market. Overall market supply of good by producer is indicated through market supply curve. C) The statement is true. Consumer surplus is the amount that consumer is willing to pay and amount he actually paid or required to pay. So here, it is true as difference among two is consumer surplus. D) The statement is False. Consumer surplus is related to demand curve as consumer surplus is an area above equilibrium price and below demand curve whereas producer surplus is related to supply curve as producer surplus is an area below equilibrium price and above supply curve. E) The statement is true. Producer surplus is difference between the price at which he supply the good and price at which he is willing to supply good. So, it can also be explained as, a net benefit that producer derived from its production.
Producer surplus is difference of a price at which producer willing to supply good and at actual price, the company supplied. Here in this question local developer offered $2,000 on the other side before joining this project some other company (competitor) offered him $ 2,600, which is $600 more than previous one. So in early situation producer left with $600 surplus between these two cases. So here, in this case local developer earned $600 of producer surplus.