Question

Think about consumer surplus. Get an example in your mind of something you want to buy and how much is the maximum you would pay for it. Now imagine the price goes DOWN by $10. What happens to your consumer surplus?

Answer 1

When the price of a good decreases, consumer surplus increases as consumers pay less than what they are willing to pay. For example, if a consumer's maximum willingness to pay for a tablet is $90 and the price drops from $80 to $70, the consumer surplus grows because the consumer saves an additional $10.

Step-by-step explanation:

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and the actual price they pay. If the price of a good goes down by $10, this increases the consumer surplus because consumers are now paying even less than what they were willing to pay. Using the example provided, let's assume the maximum price you are willing to pay for a tablet is $90 (point J), and the equilibrium price is $80. If the price drops by $10 to $70, your consumer surplus increases because you're paying $20 less than your maximum willingness to pay.

In a graphical representation on a demand curve, the consumer surplus is depicted as the area above the market price and below the demand curve. Originally, this area might be labeled F, corresponding to the surplus at the equilibrium price of $80. When the price falls to $70, the consumer surplus area expands, including the additional benefit consumers receive from the further reduced price.