Multiple Choice
Which of the following is an example of a market in which you typically act as a buyer or demander?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
Given tables showing the spending and revenue for Littleland in 2010, which of the following best describes consumer surplus in the market for a good?
A
The total amount spent by consumers on the good
B
The total revenue earned by sellers from selling the good
C
The difference between government spending and government revenue
D
The difference between what consumers are willing to pay and what they actually pay for a good
Verified step by step guidance1
Understand the concept of consumer surplus: it represents the difference between the maximum amount consumers are willing to pay for a good and the actual amount they pay.
Identify from the problem that consumer surplus is not simply the total amount spent by consumers or the total revenue earned by sellers, nor is it related to government spending or revenue.
Recall the formula for consumer surplus, which can be expressed as: \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Amount Paid}\).
Recognize that consumer surplus measures the extra benefit or utility consumers receive because they pay less than what they were willing to pay.
Conclude that the best description of consumer surplus is the difference between what consumers are willing to pay and what they actually pay for a good.
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