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if p denotes the equilibrium price, then the consumer surplus at any price higher than p must be less than or equal to the consumer surplus at price p.

2 Answers

5 votes

Final answer:

Consumer surplus is the economic benefit consumers receive when they pay less than what they are willing to pay for a product. At a price above the equilibrium price, consumer surplus is reduced because consumers are paying closer to their maximum willingness to pay.

Step-by-step explanation:

The concept being discussed in the question is consumer surplus, which is a fundamental topic in economics. Consumer surplus represents the difference between what consumers are willing to pay for a good or service - indicated by the demand curve - and what they actually pay. At a price above the equilibrium price p, the consumer surplus would indeed be less because consumers pay more than the equilibrium price and the area representing the surplus (above the market price and below the demand curve) decreases.

Considering an example with tablets being sold at $90 instead of the equilibrium price of $80, at the higher price, fewer consumers receive the additional benefit because they are paying closer to their maximum willingness to pay, reducing the consumer surplus. The area labeled F in a supply and demand graph typically illustrates this surplus. In essence, any increase in price above the equilibrium reduces the consumer surplus because it eats into the benefit consumers receive from purchasing the product for less than their maximum willingness to pay.

3 votes

Final answer:

The consumer surplus at any price higher than the equilibrium price must be less than or equal to the consumer surplus at the equilibrium price.

Step-by-step explanation:

The statement is true: if p denotes the equilibrium price, then the consumer surplus at any price higher than p must be less than or equal to the consumer surplus at price p.

Consumer surplus is the difference between what consumers are willing to pay for a product and what they actually pay. At the equilibrium price, the consumer surplus is maximized because it represents the area between the demand curve and the price. Any price higher than the equilibrium price would result in a decrease in the consumer surplus.

For example, if the equilibrium price is $80 and the consumer surplus is represented by the area labeled F, any price higher than $80 would result in a smaller consumer surplus, as the area between the demand curve and the higher price would be smaller.

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