Economics Consumer Surplus And Producer Surplus Questions
Market power refers to the ability of a firm or group of firms to influence the market price or quantity of a good or service. When market power exists, it can have an impact on both consumer surplus and producer surplus.
In terms of consumer surplus, market power can reduce it. When a firm has market power, it can set higher prices for its products, resulting in a decrease in consumer surplus. Consumers are forced to pay higher prices, reducing the difference between what they are willing to pay and what they actually pay for a product.
On the other hand, market power can increase producer surplus. When a firm has market power, it can charge higher prices for its products, leading to an increase in producer surplus. Producers are able to sell their goods at higher prices, resulting in a larger difference between the cost of production and the price they receive.
Overall, market power can lead to a redistribution of surplus from consumers to producers. Consumers experience a decrease in surplus, while producers benefit from an increase in surplus.