What is consumer surplus? Why can it be measured as the area under the demand curve...

What is consumer surplus? Why can it be measured as the area under the demand curve and above the price line? Provide an example illustrating the consumer surplus you receive from one of your recent purchases.

Solutions

Expert Solution

Consumer surplus refers to the difference between maximum price that consumers are willing to pay for a commodity & the total price actually paid by them, or the equilibrium price. In other words it is the difference between what we would pay & what we have to pay for a commodity.

It can be measured as the area under the demand curve and above the price line because demand curve itself reflects the utility consumers gain from buying a commodity & the price paid is the cost of getting that utility. So difference between Utility (benefit) & price (cost) is the consumer surplus. Any increase in price will lead to reduction in consumer surplus, while a decrease in price will lead to an increase in consumer surplus.

Recently I wanted to purchase a book for which I was willing to pay $100 & when I actually went to the book store I purchased it for $80, thus I gained a surplus of $20 (100-80).

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

This question is about producer surplus and consumer surplus. (a) Given a linear demand curve, if...

This question is about producer surplus and consumer surplus. (a) Given a linear demand curve, if domestic consumption changes by 10%, does consumer surplus also change by 10%? Why or why not? What is the relationship between change in domestic consumption and consumer surplus? Start with an algebraic form of a demand curve and to answer the question. (b) Is there a difference between producer surplus and profit? Explain.

Answer each of the following questions about demand and consumer surplus a. What is consumer surplus,...

Answer each of the following questions about demand and consumer surplus a. What is consumer surplus, and how is it measured? b. What is the relationship between the demand curve and the willingness to pay? c. Other things equal, what happens to consumer surplus if the price of a good falls? Why? Illustrate using a demand curve. d. In what way does the demand curve represent the benefit consumers receive from participating in a market? In addition to the demand...

Explain what ‘consumer surplus” and “producer surplus” are , and why they are important concepts

Explain how buyers’ willingness to pay, consumer surplus, and the demand curve are related. Explain how...

Explain how buyers’ willingness to pay, consumer surplus, and the demand curve are related. Explain how sellers’ costs, producer surplus, and the supply curve are related.

Sometimes, a price ceiling can increase Consumer Surplus compared to the market equilibrium. Under what conditions...

Sometimes, a price ceiling can increase Consumer Surplus compared to the market equilibrium. Under what conditions does this occur, and how does this relate to the elasticity of demand?

A _ surplus is a net benefit that everyone receives from participating in the market and is measured by the sum of consumer surplus and producer surplus without __.

A _________ surplus is a net benefit that everyone receives from participating in the market and is measured by the sum of consumer surplus and producer surplus without __________.Group of answer choices：Producer: GovernmentTotal: GovernmentTotal: TradeConsumer: Trade barriers

A ________ consumer surplus is measured by subtracting price from the willingness to pay for a good.

A ________ consumer surplus is measured by subtracting price from the willingness to pay for a good. The market consumer surplus is measured by an area under the ________ curve and above the price up to the relevant quantity.Group of answer choicesMarket: SupplyIndividual: SupplyMarket: DemandIndividual: Demand

6. Consumer surplus, producer surplus, and DWL. What are they? Can you determine which one is...

6. Consumer surplus, producer surplus, and DWL. What are they? Can you determine which one is which given a graph of supply and demand curves? How do economists use them to explain whether an outcome in a market is efficient or not?

a. Show on a demand supply graph how consumer surplus and producer surplus is defined b....

a. Show on a demand supply graph how consumer surplus and producer surplus is defined b. In general to evaluate welfare effects we need to consider the welfare of groups of individuals. What problem does consumer surplus pose in this regard ? c. There are to firms in an economy facing a upward sloping supply curve in a perfectly competitive setting. Show graphically how you would find the total producer surplus in the economy.

Consumer surplus. Producer surplus. Government intervention 1. If the price of a good rises while demand...

Consumer surplus. Producer surplus. Government intervention 1. If the price of a good rises while demand remains unchanged, then total consumer surplus will _________. Decrease Increase Remain unchanged We can’t say 2. Aisha is willing to spend $15 for a haircut. If she finds a salon where the price of a haircut is only $10, she will receive ______ in consumer surplus from this transaction. $ 15 $ 5 $ 10 $ 0 3. Natasha, Nelson, and Nikolai are all...

Subjects