Explain the derivation of
Explanation of Solution
Figure 1 indicates the derivation of consumer surplus.
In Figure 1, the vertical axis measures the price level and the horizontal axis measure the quantity consumed. Point B indicates the price level that consumers are willing and able to pay for the good or service and Point A indicates the actual amount that they actually do pay. Here, the actual market price is less than the benefits of consuming the item. Hence, consumer surplus is the difference between the total amount that consumers are willing to pay and the actual amount they paid. It indicates by area under the demand curve and above the market price. In short, the consumer surplus is a measure of the economic welfare that people gain from purchasing and then consuming goods and services.
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Chapter 5 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning