Multiple Choice
Which of the following is an example of a price in the context of consumer surplus and willingness to pay?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
Which of the following would likely increase consumer surplus in a market?
A
An increase in the cost of production
B
A government-imposed price floor above equilibrium
C
A decrease in consumers' willingness to pay
D
A decrease in the market price of the good
Verified step by step guidance1
Understand the concept of consumer surplus: it is the difference between what consumers are willing to pay for a good and what they actually pay. Consumer surplus increases when consumers pay less than their maximum willingness to pay.
Analyze how an increase in the cost of production affects the market: higher production costs typically shift the supply curve leftward, leading to higher prices and lower quantity, which tends to reduce consumer surplus.
Examine the effect of a government-imposed price floor above equilibrium: a price floor set above the equilibrium price causes a surplus and higher prices, which usually decreases consumer surplus because consumers pay more or buy less.
Consider a decrease in consumers' willingness to pay: this shifts the demand curve leftward, lowering both equilibrium price and quantity, which generally reduces consumer surplus since consumers value the good less.
Evaluate the impact of a decrease in the market price of the good: a lower market price means consumers pay less for the same good, increasing the difference between willingness to pay and actual price, thereby increasing consumer surplus.
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