Consumer and Producer Surplus (plus tax)

1. What is consumer surplus?

• The cost of production
• The additional benefit consumers receive
• The price consumers pay
• The revenue producers receive

2. What happens to consumer surplus when the price decreases?

• Increases
• Decreases
• Stays the same
• Is eliminated

3. Producer surplus is...

• The extra benefit producers receive from selling at a higher price
• The total revenue producers receive
• The cost producers pay
• The number of goods sold

4. How does an increase in price affect producer surplus?

• Increases
• Decreases
• Stays the same
• Disappears

5. In Diagram 4 (Consumer Loss), which area represents the loss of consumer surplus after an indirect tax?

• Triangle P2ca

• Rectangle abcd
• Area P1
• Area P2

6. In Diagram 3 (Producer Loss), which area represents the fall in producer surplus after an indirect tax?

• Area b
• Area d
• Area abc
• Area cdb

7. In Diagram 2 (Government Winner), which area represents the government’s revenue from the tax?

• Area P1
• shaded area

• Area P2
• Area Q2

8. What does DWL stand for?

• Dead weight loss to the consumers

• Dead Weight Loss to the community

• Dead weight loss to society

• Dead weight loss to producers

9. How is producer surplus affected by indirect tax?

• Increases
• Decreases
• No effect
• Increases only in the short run

10. How does price elasticity of demand affect the distribution of tax burden?

• More elastic demand means consumers bear more
• More inelastic demand means producers bear more
• More elastic demand means producers bear more
• Price elasticity has no effect