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Assume there is a good that a producer sells for $100$. A consumer's willingness to pay for that good is $50$. However a government program forces consumers to purchase the good irrespective of their willingness to pay (assume budget constraints are not an issue right now). Would this imply their consumer surplus would be $-50$?

Or do we reflect the negative consumer surplus as producer surplus (this doesn't make sense to me)?

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  • $\begingroup$ "Or do we reflect the negative consumer surplus as producer surplus (this doesn't make sense to me)" Then why are you throwing it out there? $\endgroup$ – Giskard Apr 17 at 17:58
  • $\begingroup$ I would think so. Because the consumer doesn't want to buy it, forcing him to buy it should be reflected as negative consumer surplus. But it's hard to imagine such a situation. $\endgroup$ – Vizag Apr 17 at 19:18
  • $\begingroup$ "a producer sells for 100". Does that mean their supply curve is perfectly elastic at 100? Or that their supply curve (which may be upward-sloping) happens to intersect the demand curve at 100? In the latter case if consumers are forced to purchase the good the resulting shift in the demand curve will change the price. $\endgroup$ – Adam Bailey Apr 18 at 9:55
  • $\begingroup$ @adam Perfectly elastic $\endgroup$ – Joseph Apr 18 at 19:31
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Consumer surplus is their willingness to pay minus the price they pay, and producer surplus is the price they receive minus their willingness to receive. So if you are assuming that consumers are forced to buy at a price of 100, yes the consumer surplus is negative. and according to your example, the producer surplus will be zero. You are right it does not make sense whatsoever to reflect it as producer surplus.

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