Chapter 5, Problem 1QFR

To determine

The derivation of consumer surplus from willingness to pay and market equilibrium is to be explained.

Explanation of Solution

When a consumer wants to buy a commodity, he/she has a certain amount that he/she is willing to pay for that commodity and can pay. Sometimes, it so happens that the market equilibrium price of this commodity is lower than his/her willingness and ability to pay. This difference is between surplus or consumer surplus.

This difference between the willingness to pay and market equilibrium price is the consumer surplus. This is also the additional satisfaction that the consumer receives from consumption.

Economics Concept Introduction

Concept Introduction:

Consumer Surplus- Is defined as the total amount that the consumers are willing and able to pay for a commodity and the amount they pay, which is the prevailing market price.