What is the difference between consumer surplus and producer

What is the difference between consumer surplus and producer surplus? If the domestic price of oranges is $3.00 per pound and the world price is $2.50 per pound and if the nation allows unrestricted trade, what will be the result to consumer and producer surplus?

Solution

Hi,

Please find the answer as follows:

Part A:

Consumer surplus indicates difference between the amount that the consumer are willing to pay (for a good or service) and the amount they actually (which is the market price) for that good or service.

Producer surplus indicates the difference between the price at which producers are willing to supply a good or service and the price they actually receive for that good or service,

Part B:

There would be an increase in the consumer surplus and a decline in producer surplus in the domestic market. Total surplus will increase as consumer surplus will be higher than the producer surplus.

Thanks.