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2. (a.) What is consumer surplus and how is it measured? (b.) What is the relationship...

2. (a.) What is consumer surplus and how is it measured?

(b.) What is the relationship between the demand curve and the willingness to pay?

(c.) With the aid of a demand curve, explain what happens to consumer surplus if the price of a good falls, other things unchanged
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Answer #1

Answer 2(a) : Consumer surplus - It is the difference between the highest price a consumer willing to pay (lowest price a firm willing to pay) for a good or services and actual(current) market price which the customer recieves. It can be affected by elasticity of demand, increase or decrease in good's market price.

It is measured by finding the area below demand curve and above price. Use 1/2 × base × height formula of triangle for computing the value of consumer surplus.

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