Which of the following best describes the concept of economic surplus in the context of a business owner generating a consistent income and maintaining a healthy business?

• A. The total amount of money the business owner receives from sales before deducting any costs.
• B. The difference between the business owner's total revenue and total cost, representing the net benefit to the owner and society.
• C. The value of the business's assets minus its liabilities.
• D. The amount of profit the business owner earns after paying taxes.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of economic surplus. Economic surplus refers to the net benefit that remains after accounting for all costs associated with producing goods or services. It reflects the overall gain to both the producer (business owner) and society.
2. Step 2: Identify the components involved in calculating economic surplus. These are total revenue (the total income from sales) and total cost (all expenses incurred in production, including opportunity costs).
3. Step 3: Express economic surplus mathematically as the difference between total revenue and total cost: \[\text{Economic Surplus} = \text{Total Revenue} - \text{Total Cost}\]
4. Step 4: Recognize that this difference represents the net benefit to the business owner and society, as it shows how much value is created beyond covering all costs.
5. Step 5: Differentiate economic surplus from other financial measures such as gross revenue (total sales before costs), accounting profit after taxes, or net asset value, which do not fully capture the net benefit concept.