Which of the following is not true when the price of a good or service falls?
a. Buyers who were already buying the good or service are better off.
b. Some new buyers, who are now willing to buy, enter the market.
c. The total consumer surplus in the market increases.
d. The total value of purchases before and after the price change is the same.
The correct answer and explanation is :
The correct answer is:
d. The total value of purchases before and after the price change is the same.
Explanation:
When the price of a good or service falls, it has several effects on both buyers and the market as a whole. Let’s go through each statement one by one:
a. Buyers who were already buying the good or service are better off.
This is true. When the price of a good decreases, the buyers who were already purchasing the good benefit because they now pay less for the same quantity of the good. This increase in their well-being is represented by an increase in consumer surplus, which is the difference between what consumers are willing to pay and what they actually pay.
b. Some new buyers, who are now willing to buy, enter the market.
This is also true. A fall in price makes the good or service more affordable, attracting new buyers who were previously not willing or able to purchase it at the higher price. This expands the market and increases overall consumer surplus as more people benefit from the lower price.
c. The total consumer surplus in the market increases.
This is true as well. When the price falls, both existing buyers and new buyers benefit. Existing buyers enjoy paying a lower price, and new buyers enter the market. The combined effect of these changes is an increase in total consumer surplus, which is the overall benefit consumers receive from the good or service.
d. The total value of purchases before and after the price change is the same.
This statement is not true. The total value of purchases, which can be thought of as total expenditure (price × quantity), is generally not the same before and after the price change. After the price falls, although the price per unit is lower, the increase in quantity sold (because of the entry of new buyers and the greater purchase quantity from existing buyers) typically leads to a higher total value of purchases. Even though the price is lower, the increase in the number of units sold usually offsets the lower price, resulting in a higher total expenditure.
Thus, statement d is incorrect, and the total value of purchases is typically different before and after a price change.