LA Business Daily
What can we say about the consumer and producer surplus when the supply curve is "perfectly inelastic"?
What can we say about the consumer and producer surplus when the supply curve is "perfectly inelastic"? How can we tell which one is greater than the other?
Public Comments
- Ignore the tax revenue part of the diagram, but as you can see, the producer surplus is a big square below the equilibrium price level, whereas consumer surplus is a much smaller triangular shape above it. Therefore, producer surplus is greater than consumer surplus when supply is price inelastic. http://1.bp.blogspot.com/_KAtDzY5O_1M/SJj92jQE6-I/AAAAAAAADYQ/805019ObLzk/s400/350px-Perfectly_inelastic_supply.svg.png
- "Perfectly inelastic" mean "vertical". You cannot tell which surplus is larger, it all depends on how high and steep the demand is. if demand was perfectly inelastic, then consumer surplus would be fact infinite and larger than any finite producer surplus.
