The difference between the maximum amount buyers are willing to pay for a given quantity of a good and the amount actually paid is called
a. deadweight loss. b. producer surplus. c. deadweight gain. d. consumer surplus.
The correct answer and explanation is:
The correct answer is d. consumer surplus.
Consumer surplus refers to the difference between what a buyer is willing to pay for a good and what they actually pay for it. It represents the benefit to consumers because they are able to purchase a product for a price lower than the maximum amount they were prepared to spend. This concept is important in understanding how markets function and the welfare they create for consumers.
To explain this further, consider a scenario where a consumer is willing to pay \$100 for a product, but the market price is \$70. The consumer surplus in this case would be \$30 (\$100 – \$70). This \$30 reflects the additional benefit that the consumer gets from paying less than what they were willing to pay. In graphical terms, consumer surplus is depicted as the area between the demand curve and the price level, up to the quantity of goods purchased.
The concept of consumer surplus is fundamental in welfare economics, as it helps assess the overall benefit to consumers in a market. If the market price were to increase or if a tax were introduced, the consumer surplus would typically decrease, indicating a loss of consumer welfare. Similarly, if the price were to decrease, consumer surplus would increase, which is considered a gain for consumers.
In contrast, the other options mentioned relate to different concepts. Producer surplus refers to the difference between the price a seller receives for a good and the minimum price they are willing to accept, while deadweight loss refers to the lost economic efficiency when the equilibrium quantity of a good or service is not achieved.