Economics Consumer Surplus And Producer Surplus Questions Medium
Consumer surplus is a measure of the economic benefit that consumers receive when they are able to purchase a good or service at a price lower than the maximum price they are willing to pay. It represents the difference between the price consumers are willing to pay and the actual price they pay in the market.
The relationship between consumer surplus and demand is inverse. As the demand for a good or service increases, consumer surplus tends to decrease. This is because when there is high demand, sellers can charge higher prices, reducing the gap between the maximum price consumers are willing to pay and the actual price they pay. As a result, consumer surplus decreases.
On the other hand, when the demand for a good or service decreases, consumer surplus tends to increase. This is because sellers may need to lower prices to attract buyers, creating a larger gap between the maximum price consumers are willing to pay and the actual price they pay. As a result, consumer surplus increases.
In summary, the relationship between consumer surplus and demand is inverse. When demand increases, consumer surplus tends to decrease, and when demand decreases, consumer surplus tends to increase.