Question

Consumer surplus arises in a market because:

A. At the current market price, quantity supplied is greater than quantity demanded.
B. At the current market price, quantity demanded is greater than quantity supplied.
C. The market price is below what some consumers are willing to pay for the product.
D. The market price is higher than what some consumers are willing to pay for the product.

Answer 1

Consumer surplus arises because the market price is below what some consumers are willing to pay, creating a gap between their willingness to pay and the market price, and hence resulting in additional satisfaction for the consumers.

Step-by-step explanation:

Consumer surplus indeed arises in a market when the market price is below what some consumers are willing to pay for a product. This surplus represents the additional satisfaction or benefit that consumers experience when the actual market price is lower than their maximum willingness to pay. The difference between what consumers are willing to pay and what they actually pay, reflected by the market equilibrium price, constitutes the consumer surplus.

This concept is foundational in economic analysis, particularly in understanding demand and supply dynamics. A market operating efficiently tends to maximize consumer surplus by ensuring that prices reflect consumers' valuations. The examination of consumer surplus provides insights into the overall welfare and efficiency of a market, illustrating the gains and benefits that consumers enjoy when transactions occur at prices lower than their individual valuations for a given product or service.