True or False If a local Christmas tree farmer is earning a producer surplus on each Christmas tree he sells then his customers cannot enjoy any consumer surplus on the Christmas trees they buy?
False. It depends on the price consumers are willing to pay for
the producer's Christmas tree. For example, if the producer is
willing to sell his tree at $3 but the market price is $5, then the
surplus for the producer is $2. Say, a consumer is willing to buy
the tree at $15, then the consumer surplus us $10. Remember that
the consumer surplus is the are under the demand curve and above
the horizontal line passing through the equilibrium price. As long
as this area exists, then it is possible for consumers to enjoy a
consumer surplus.