Multiple Choice
Which of the following best describes consumer surplus in relation to a consumer's willingness to pay?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
If buyer demand for branded athletic footwear is projected to grow, what is the most likely effect on consumer surplus in the market, assuming supply remains unchanged?
A
Consumer surplus will decrease because supply is fixed and cannot meet increased demand.
B
Consumer surplus will decrease because the price will fall as demand increases.
C
Consumer surplus will increase because more buyers are willing to pay higher prices.
D
Consumer surplus will remain unchanged because willingness to pay does not affect surplus.
Verified step by step guidance1
Step 1: Understand the concept of consumer surplus. Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay. It represents the net benefit to consumers from participating in the market.
Step 2: Analyze the effect of an increase in demand on the market. When buyer demand for a product increases and supply remains unchanged, the demand curve shifts to the right, leading to a higher equilibrium price and quantity.
Step 3: Consider how the increase in price and quantity affects consumer surplus. Although the price rises, the increase in quantity sold means more consumers gain surplus, and some consumers are willing to pay more than the new price, increasing total consumer surplus.
Step 4: Recognize that consumer surplus generally increases with demand growth if supply is fixed because the area under the demand curve and above the price line expands.
Step 5: Conclude that the most likely effect of increased demand with unchanged supply is an increase in consumer surplus, as more buyers are willing to pay higher prices, resulting in greater net benefits to consumers.
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