Question

Consumer surplus is A. the difference between the highest price a consumer is willing to pay and marginal benefit. B. the difference between the highest price a consumer is willing to pay and the lowest price a firm would be willing to accept. C. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. D. the difference between the lowest price a firm would be willing to accept and the price it actually receives. E. the highest price a consumer is willing to pay to consume a good or service. How does consumer surplus change as the equilibrium price of a good rises or​ falls?

Answer 1

Answer:

The correct answer is C. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Explanation:

Consumer surplus arises from the law of diminishing returns. This means that the first unit to acquire we value it highly but as we acquire additional units our valuation falls. However, the price we pay for any unit is always the same: the market price. In this way, we enjoy a positive surplus of the first units we acquire until we reach the last one in which the surplus will be zero.

In graphic terms, consumer surplus is measured as the area below the market demand curve and above the price line. The demand curve measures the amount consumers are willing to pay for each unit consumed. Then, the total area below the demand curve reflects the total utility of consumption of the good or service. If the price we pay for each unit is subtracted from this area, the consumer surplus is obtained.