Question

Holding price and quantity constant, why does consumer surplus from a product decline if the demand...

Holding price and quantity constant, why does consumer surplus from a product decline if the demand curve becomes more elastic?

Homework Answers

Answer #1
  • When the prices and quantity are held constant and if the demand curve becomes more elastic, the consumer surplus from a product declines for a consumer.
  • This is because when the demand is very elastic, consumer's willingness to pay for a particular good decreases until a point where the amount consumer's are willing to pay equals the amount they pay.
  • At this point, there is no consumer surplus and it equals zero.
  • We know that the consumer surplus is the area under the demand curve. Hence, when the demand becomes elastic, the area under the curve when the price and quantity is held constant also decreases.
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