Consumer surplus:

A. represents the maximum amount a person is willing to pay for a particular good.

B. is the difference between the maximum amount a person is willing to pay for a good and its current market price.

C. is the difference between the current market price and the cost of production for the firm.

D. is the difference between the true value of a good and the amount a person is willing to pay for the good.

Question

Tyrese Bradford

Business

19 January, 18:18

Consumer surplus:

A. represents the maximum amount a person is willing to pay for a particular good.

B. is the difference between the maximum amount a person is willing to pay for a good and its current market price.

C. is the difference between the current market price and the cost of production for the firm.

D. is the difference between the true value of a good and the amount a person is willing to pay for the good.

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Answers (1)

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Payten Orr · Answer 1

The answer is: B) is the difference between the maximum amount a person is willing to pay for a good and its current market price.

Explanation:

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a product or service and the actual price of the product or service.

Consumer surplus can be better explained at a personal level. Imagine a person wants to buy a new smartphone. He or she is willing to pay up to $600 for a new unit. He looks around a store and finds the smartphone that best suits him (or her) and it only costs $500. The difference between the amount the customer was willing to pay for a smartphone and the actual price of the smartphone ($600 - $500 = $100) is that consumer's surplus on smartphones.

In a demand-supply curve, consumer surplus is given by the area below the demand curve and above the equilibrium price.