The following questions refer to the accompanying diagram shows the effects of an excise subsidy given to firms. The initial price and quantity are P0 and Q0, respectively. After the subsidy is granted, the equilibrium quantity is Q1, firms receive the price Ps, and consumers pay the price Pd.

-Refer to Excise Subsidy.Which areas count as part of the measure for both consumer's surplus and producer's surplus?

Question

The following questions refer to the accompanying diagram shows the effects of an excise subsidy given to firms. The initial price and quantity are P0 and Q0, respectively. After the subsidy is granted, the equilibrium quantity is Q1, firms receive the price Ps, and consumers pay the price Pd.

-Refer to Excise Subsidy.Which areas count as part of the measure for both consumer's surplus and producer's surplus?

Quizplus · Accepted Answer

Consumer's surplus and producer's surplus are distinct concepts that measure the benefits to consumers and producers, respectively, from participating in a market. However, there are no areas on a standard supply and demand graph that would simultaneously represent both consumer's and producer's surplus, as these surpluses are calculated from different baselines (demand curve for consumers, supply curve for producers) and in relation to different prices (market price and the highest price consumers are willing to pay for consumers, market price and the lowest price producers are willing to accept for producers). Therefore, the correct answer is that no areas can count as part of the measure for both consumer's surplus and producer's surplus.

The Following Questions Refer to the Accompanying Diagram Shows the Effects