Final answer:
Consumer surplus represents the economic benefit to consumers by paying less than their maximum willingness to pay for a good or service. At a price of $1.50 for bottled water, we calculate consumer surplus by the willingness to pay minus the actual price across consumers. If the price rises to $2.50, total consumer surplus decreases as some consumers no longer benefit and others benefit less.
Step-by-step explanation:
Consumer surplus is the benefit that consumers receive when they pay a price that is lower than the maximum price they are willing to pay for a good or service. When the price of premium bottled water is $1.50, consumer surplus can be calculated by comparing the individual consumers' willingness to pay (shown in the table which is not provided here) with the actual price they pay. To calculate the total consumer surplus, we would subtract the market price from each consumer's willingness to pay (if it is higher), multiply by the quantity they purchase, and sum these amounts across all consumers.
If the price rises to $2.50, the consumers who were willing to pay more than $2.50 will still receive some surplus, though it will be less than before. However, consumers who were only willing to pay between $1.50 and $2.50 are no longer gaining a surplus since the new price may be equal to or higher than their willingness to pay. The total consumer surplus at the new price is the sum of the remaining individual consumer surpluses, reflecting the decrease due to the increased price.
To illustrate this graphically, we start by plotting the demand curve, which represents consumers' willingness to pay at different quantities. The area under the demand curve and above the price line represents the consumer surplus. When the price increases, the area representing consumer surplus shrinks, reflecting the loss of surplus to some consumers and the reduced surplus for others.