Suppose a consumer is willing to pay a maximum of $45 for a brand of perfume whose price increases from $37 to $41.What will be the impact of this price rise on the consumer surplus?

Question

Quizplus · Accepted Answer

The consumer surplus is the difference between the maximum amount that a consumer is willing to pay for a good and the actual price that they pay. In this scenario, the consumer is willing to pay a maximum of $45, but the price of the perfume increased from $37 to $41. Therefore, the new price is still below the consumer's maximum willingness to pay, which means the consumer surplus will still exist. However, it will be reduced by the amount of the price increase, which is $4. Hence, the consumer surplus will decline by $4.

Suppose a Consumer Is Willing to Pay a Maximum of $45