Multiple Choice
When two goods are complements, how does an increase in the price of one good affect the consumer surplus for the other good?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
The customer's view of price can be described by which of the following equations?
A
Consumer Surplus = Price - Willingness to Pay
B
Willingness to Pay = Price + Consumer Surplus
C
Price = Willingness to Pay - Consumer Surplus
D
Consumer Surplus = Willingness to Pay - Price
Verified step by step guidance1
Understand the concept of Consumer Surplus: it represents the difference between what a consumer is willing to pay for a good (Willingness to Pay) and what they actually pay (Price).
Recall the formula for Consumer Surplus, which is given by: \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Price}\).
Check each provided equation to see which one matches the formula above.
Verify that the equation \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Price}\) correctly expresses the customer's view of price in terms of consumer surplus.
Conclude that the correct relationship is the one where Consumer Surplus equals Willingness to Pay minus Price, confirming the given correct answer.
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