IB Economics HL 2.3.4 Consumer and Producer Surplus Questions

Practise defining and calculating consumer, producer and community surplus from demand-and-supply diagrams, including changes caused by demand shifts or price controls.

Exam points

Define consumer surplus and producer surplus and locate them relative to equilibrium price, demand and supply.
Define community surplus as the sum of consumer surplus and producer surplus.
Calculate community surplus from consumer and producer triangle areas, converting the quantity-axis units.
Find the change in community surplus by adding the changes in consumer and producer surplus.
Show how a binding rent ceiling reduces quantity supplied and creates a loss of community surplus.
Use separate domestic consumption and production quantities when calculating surplus at a world price.

[Maximum number: 2]

Country X and Country Y are capable of producing both apples and bananas. Assume a two-country, two-product model.

Country Y has absolute advantage in the production of both apples and bananas, and comparative advantage in the production of bananas.

The market for oranges in Country Z is illustrated on Figure 5.

Figure 5

The domestic demand and supply for oranges are given by the functions

\begin{aligned} & Q d=300-100 P \\ & Q s=-60+60 P \end{aligned}

where P is the price of oranges in dollars per kilogram ( $\$$ per kg ), Q d is the quantity of oranges demanded (thousands of kg per month) and Qs is the quantity of oranges supplied (thousands of kg per month). The world price of oranges is $\$ 2$ per kg.

Due to increased awareness of the possible health benefits of vitamin C , the demand for oranges in Country Z increases by 60000 per month at each price.

Calculate the change in social (community) surplus as a result of the increase in demand for oranges.

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IB Economics HL 2.3.4 Consumer and Producer Surplus Questions question 1