Which of the following statements about welfare measures involving consumer surplus and producer surplus is correct?

• A. Consumer surplus is the extra benefit to consumers; producer surplus is the extra benefit to producers.
• B. They are measures of total government revenue.
• C. They are the same concept.
• D. Consumer surplus measures costs to consumers.

Answer: (A)

Welfare in a market is about the extra benefits that trading creates for buyers and sellers. Consumer surplus is the extra value that buyers gain because the price they actually pay is lower than what they would be willing to pay. Producer surplus is the extra benefit that sellers gain because the market price is higher than the minimum amount they would accept to produce the good. These are benefits to participants from trading, not government revenue, and they are separate concepts that together reflect the total gains from trade.

For example, if the market price is £5 and a buyer’s willingness to pay is £8, that buyer gains £3 of consumer surplus. If a seller would have supplied at £3 but receives £5, that seller gains £2 of producer surplus. The statement captures the idea that each side gets an extra benefit from the exchange.

The other options don’t fit because government revenue is about taxes or fees, not welfare surplus from voluntary trade; the two measures are distinct concepts; and consumer surplus is about benefits, not costs to consumers.