In a perfectly competitive market in which identical firms face the same horizontal marginal cost curve, if demand increases, then the amount of consumer surplus will
A) increase.
B) decrease.
C) become negative.
D) not change.

Question

Quizplus · Accepted Answer

When demand increases in a perfectly competitive market, the market price will typically increase to a level at which the quantity supplied equals the new quantity demanded. This price increase will lead to an increase in producer surplus, but will also lead to an increase in consumer surplus as some consumers who were previously unwilling to pay the higher price are now able to purchase the good at the new price. Therefore, the amount of total surplus (the sum of producer and consumer surplus) will increase, and specifically, the amount of consumer surplus will increase.

In a Perfectly Competitive Market in Which Identical Firms Face