Question

At market equilibrium, which areas represent consumer surplus (CS)?

1) Above the market price and below the demand curve
2) Below the market price and above the supply curve
3) Above the market price and above the demand curve
4) Below the market price and below the supply curve

Answer 1

Consumer surplus is represented by the area above the market price and below the demand curve at market equilibrium.

Step-by-step explanation:

Consumer surplus is the gap between the price that consumers are willing to pay, based on their preferences, and the market equilibrium price. At market equilibrium, consumer surplus is represented by area 1) above the market price and below the demand curve. This area represents the benefit to consumers because it shows that they are willing to pay more than the market price for a product.