Consumer surplus is greater than producer surplus when the demand curve is __________; producer surplus is greater than consumer surplus when the demand curve is _________.

Question

Quizplus · Accepted Answer

When the demand curve is inelastic (i.e. steep), a small decrease in quantity supplied would lead to a much larger increase in price, resulting in a greater producer surplus. On the other hand, when the demand curve is elastic (i.e. flatter), consumers are more sensitive to changes in price and hence would be able to enjoy a larger surplus. Therefore, option D is the correct answer.

Consumer Surplus Is Greater Than Producer Surplus When the Demand