Answer:
Consumer's surplus is $5 and the producer's surplus is $4.
Explanation:
1) Consumer surplus is the extra amount a consumer is willing to pay for a product above the price they actually do pay.
Consumer surplus = maximum price willing to pay – actual price
Maximum price willing to pay = $25
Actual price = $20
Consumer surplus = $25 – $20
Consumer surplus = $5
Therefore, the customer saved $5 as a consumer surplus which he/she can spend on some other goods or services.
2) Producer surplus is the difference between what price producers are willing and able to sell a good for and what price they actually receive from consumers (market price).
Producer surplus = Actual price – minimum price willing to accept
Actual price = $20
Minimum price willing to accept = $16
Producer surplus = $20 – $16
Producer surplus = $4.
