How willingness to pay , consumer surplus , and demand curve are related.
Explanation of Solution
The consumer surplus is the difference between the maximum willing to pay price by the consumer and the actual paying price of the consumer. The maximum willing to pay price is the price that the consumer gives to the commodity. When the consumer values the good most, he will be ready to pay the highest willing to pay price and vice versa. Thus, the willingness to pay, the consumer surplus, and the demand curve are closely related with each other.
The peak point of the demand curve is the maximum willing to pay price by the consumer and thus, the height of the demand curve represents the maximum willingness to pay price of the consumer for the commodity. The area below this price and above the actual paying price represents the consumer surplus of the economy, which is equal to the price that the consumer is willing to pay minus the price actually paid. In this way, the consumer surplus, willingness to pay, and the demand curve are closely related.
Concept introduction:
Consumer surplus: It is the difference between the highest willing to pay price of the consumer and the actual price that the consumer pays.
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Chapter 7 Solutions
PRINC. OF ECON. LOOSE W/APLIA+COUPON
- Using the concept of consumer surplus, discuss whether the citizens of Raleigh were better or worse off from the imposition of price gouging laws?arrow_forwardIllustrate an example of your choice and discuss consumer surplus, producer surplus, Total surplus, and deadweight loss with the help of the graphs.arrow_forwardExplain the Consumer Surplus and Producer Surplus concept. Why this surplus concept is important in the market analysis? How price changes create inequilibrium in the market?arrow_forward
- Define Consumer and Producer Surplus and illustrate them graphically.arrow_forwardEach customer's willingness to pay for a designer scarf is presented in the table below. Name Willingness to Pay Tara $2,000 Zil 1,800 Ara 1,600 Emily 1,000 Robert 500 If the price of a scarf decreases from $1,800 to $1,000, total consumer surplus will increase, in numerals, by $_____.arrow_forwardIf the market price of a good decreases, the quantity demanded will Multiple Choice decrease and consumer surplus will increase. increase and consumer surplus will decrease. decrease and consumer surplus will decrease. increase and consumer surplus will increase.arrow_forward
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