term1 Definition1term2 Definition2term3 Definition3
Please sign in to your Google account to access your documents:
Def of consumer surplus
This is the difference between the maximum amount an individual is prepared to pay for a product and the actual price they pay.
The higher the consumer surplus, the higher the consumer welfare and ability to buy a product.
Explain the graph
The above diagram shows a consumer surplus, shaded above the market price, P1, and below the demand curve. This means that any individual who’s willing to pay a maximum price, P, and above will be Able to purchase the product.
An individual prepared to pay price P will have a zero consumers surplus. While an individual prepared to pay above the price P, will have a positive consumers surplus. Any individual prepared to pay below price P will not be able to afford to pay the product and therefore will be cut from the market.
What happens to the Cs when the price changes
When the price increases or decreases in the market, this will affect individual consumer surplus and the quantity of good a consumers will afford to pay. For example, an increase in the price of good will reduce consumers purchasing power. This will cause a fall in the consumer surplus
Need help typing ? See our FAQ (opens in new window)
Please sign in to create this set. We'll bring you back here when you are done.
Discard Changes Sign in
Please sign in to add to folders.
Sign in
Don't have an account? Sign Up »
You have created 2 folders. Please upgrade to Cram Premium to create hundreds of folders!