Answer to Question #98103 in Macroeconomics for Naafu Peter

Question

Suggest any two ways to reduce surplus

Answer 1

Consumer surplus:

the difference between the price consumer willing to pay for a particular good and the price able to pay for the good.

Consumer surplus can be reduce by:

• Changes in price level: firms can reduce consumer surplus by using their market power to increase the product price over the equilibrium price level.

• Price discrimination: use different prices for different customer segments for the same product in the market.

• Price floor:when the price is set above the equilibrium, only a few numbers of consumers willing to buy that product. It decreases consumer surplus.

Producer surplus:

the difference between the expected minimum price for the quantity of product supply and the actual amount they receive. When the price increases, produce more and receive more than expected.

Producers surplus can be reduce by:

• Price control by the government: lower the equilibrium price of the goods in the market
• Offer the quotas: specified the number of goods able to sell in the market
• Decrease the demand for the good and decrease the market supply