Consumer Surplus

What is the goal of economics in terms of consumer behavior?

To maximize happiness or satisfaction when purchasing goods.

What is "consumer surplus"?

It is the difference between the maximum price consumers are willing to pay and the price they actually pay.

What happens to satisfaction as we consume more of a product?

Satisfaction generally decreases as consumption rises.

How does the demand curve relate to consumer satisfaction?

It represents satisfaction levels, showing the maximum consumers are willing to pay for each quantity.

What is total expenditure?

Total expenditure is the price per unit multiplied by the quantity consumed.

How is consumer surplus calculated at equilibrium?

Consumer surplus = Total amount willing to pay

What effect does inelastic demand have on consumer surplus?

Inelastic demand typically increases consumer surplus as consumers are willing to pay higher prices.

How does elastic demand affect consumer surplus?

Elastic demand leads to lower consumer surplus due to a lower willingness to pay.

What happens to consumer surplus when demand shifts outward?

Consumer surplus increases, even if prices rise, as consumers demand more at each price level.

How does an outward shift in supply impact consumer surplus?

An outward supply shift generally increases consumer surplus by lowering market prices.

What is the impact of a successful advertising campaign on consumer surplus if the price remains constant?

Consumer surplus may increase as demand shifts outward due to increased consumer interest.

What are the key factors affecting consumer surplus?

Elasticity of demand, shifts in supply and demand, and market equilibrium impact consumer surplus.

What is the purpose of maximizing happiness in economics?

It helps gauge satisfaction levels, influencing consumer choices and market demand.

How do prices reflect consumer satisfaction?

The price consumers are willing to pay indicates their satisfaction or "value" derived from a product.

What does "good value" imply in economic terms?

It suggests that the consumer feels the price paid is less than or equal to the satisfaction or utility gained.

What are the distinctions between consumer and producer surplus?

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay, while producer surplus is the difference between the actual selling price and the minimum price producers are willing to accept.

Why are supply and demand diagrams useful in economics?

They visually illustrate consumer and producer surplus and show the effects of shifts in supply and demand on market equilibrium.

How does increasing quantity affect consumer willingness to pay?

As quantity increases, consumers are typically willing to pay less due to diminishing satisfaction.

Explain the demand schedule in the context of consumer surplus.

The demand schedule shows quantities demanded at various price points, revealing consumer willingness to pay at each level, which is key for calculating consumer surplus.

How does market price influence consumer decisions?

Consumers decide their purchase quantities based on the market price, balancing it against their maximum willingness to pay.

Describe the relationship between consumer surplus and market price.

Consumer surplus is maximized when the market price is significantly lower than the price consumers are willing to pay for the same quantity.

What is the formula for total spending?

Total Spending = Price per Unit × Quantity Consumed.

What effect does inelastic demand have on consumer surplus?

Inelastic demand usually results in a higher consumer surplus, as consumers are less sensitive to price changes and maintain a high willingness to pay.

How does elastic demand impact consumer surplus?

Elastic demand reduces consumer surplus because consumers are more sensitive to price and unwilling to pay higher amounts.

What does an outward shift in demand indicate?

It indicates increased consumer willingness to purchase more at every price point, potentially increasing consumer surplus.

What happens to consumer surplus if there is an outward shift in supply?

An outward shift in supply often increases consumer surplus by lowering prices and making goods more accessible.

How is consumer surplus affected by successful advertising if prices stay constant?

Advertising can shift demand outward, raising consumer surplus by increasing perceived value and willingness to purchase.

Define "diminishing marginal utility."

Diminishing marginal utility is the principle that as consumption of a product increases, the additional satisfaction from each extra unit decreases.

How can consumer surplus be illustrated on a supply and demand graph?

It appears as the area above the market price and below the demand curve, up to the quantity consumed.

What key question does this lesson ask about shifts in supply and demand?

"To what extent do shifts in S and D affect consumer surplus?"

What is the effect on consumer surplus when the demand curve is relatively elastic?

Consumer surplus is lower since consumers are highly sensitive to price changes and have a lower willingness to pay.

Why might an outward shift in demand lead to a higher consumer surplus despite price increases?

Because consumers are willing to buy more at higher prices, indicating a higher overall satisfaction.