Question

If the price of a product increases rev: 05_10_2018 Multiple Choice total revenue will definitely increase. consumer surplus will increase. consumer surplus will decrease. total revenue will definitely decrease.

Answer 1

Answer:

consumer surplus will decrease.

Explanation:

Consumer surplus is defined as the difference between the price customers are willing to pay for a product and what they actually pay.

On the demand and supply curve it is indicated by the shaded area between equillibrum and demand curve as illustrated in the attached diagram.

For example let's assume the price a customer was willing to pay for a product was $50 and market price was $30

Initial consumer surplus= 50- 30= $20

Assume bmarket price increase to $40

The new consumer surplus is= 50- 40

Present consumer surplus= $10

So a price increase causes a decrease in the consumer surplus.