Question

Which of the following equations is valid? Select one: a. Total surplus = Value to buyers - Amount paid by buyers b. Consumer surplus = Total surplus - Cost to sellers c. Total surplus = Amount received by sellers - Cost to sellers d. Producer surplus = Total surplus - Consumer surplus

Answer 1

Answer:

D. Producer Surplus = Total surplus - Consumer surplus

Explanation:

Total surplus is a term used to evaluate the economic welfare. The addition of the consumer surplus and producer surplus gives the Total surplus.

Producer surplus is obtained by subtracting economic cost from the market selling price. Consumer surplus refers to the difference between the willingness to pay and the market price.

Since Total surplus = Consumer surplus - Producer surplus, then Producer surplus can be obtained by subtracting Consumer surplus from Total surplus.