Producer/Consumer surplus

Producer surplus: The difference between the price a producer is willing to accept and what is actually paid
1. A fall in price reduces producer surplus, rise in price increases producer surplus
2. Total revenue= P1xQ1
A change in producer surplus
caused by an improvement in production technology or a fall in the cost of raw materials and components used in the production of a good or service
Factors affecting supply: coat of production, size +nature of the industry
Increase in supply: technological advance, reduction in th rate of indirect taxation
Consumer surplus: Extra amount that a consumer is willing to pay for a product above the price that is actually paid
1. A fall in price results to an increase in consumer surplus
Factors affecting demand
1. Consumer income
  1. Real disposable income
  2. Normal goods: income increases, demand increases
  3. Inferior goods: Income increases, demand decreases
2. Price of other products
  1. Substitutes: Competing goods
  2. Complements: Goods for which there's joint demand
3. Tastes+Fashion
  1. Producers only advertise if they believe it has positive effect on demand
Decrease in supply: less of a product being supplied at the same price, increase in the rate of indirect taxation

Zusammenfassung der Ressource

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