Suppose that a customer's willingness to pay for a product is $5, and the seller's willingness to sell is $2. If the negotiated price is $4:

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Quizplus · Accepted Answer

Producer surplus is the difference between the price a producer receives for a good and the minimum price they are willing to accept. In this case, the producer's willingness to sell is $2, and the negotiated price is $4, so the producer surplus is $2. Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the price they actually pay. In this case, the consumer's willingness to pay is $5, and the negotiated price is $4, so the consumer surplus is $1. Therefore, producer surplus is greater than consumer surplus.

Suppose That a Customer's Willingness to Pay for a Product