The gains from consumer surplus and producer surplus occur when
A) both consumers and producers engage in voluntary exchange.
B) consumers are willing to buy a good but producers are not willing to provide it.
C) producers are willing to provide a good but consumers are not willing to pay for it.
D) the government supplies the good instead of firms.

Question

Quizplus · Accepted Answer

Both consumer surplus and producer surplus occur when consumers and producers engage in voluntary exchange. Consumer surplus is the difference between what a consumer is willing to pay for a good and what they actually pay, while producer surplus is the difference between the price received and the cost of production. Both parties only engage in the exchange if they believe the exchange will leave them better off, resulting in gains from trade. Choices B, C, and D do not describe situations where both consumer and producer surplus are gained.

The Gains from Consumer Surplus and Producer Surplus Occur When