Question

All else equal, what happens to consumer surplus if the price of a good increases?

Answer 1

As the price of a good increases, the consumer surplus decreases.

What is the consumer surplus?

Consumer surplus is the difference between the willingness to pay of a consumer and the price of the good.

Consumer surplus = willingness to pay – price of the good

For example, if the highest amount a consumer is willing to pay for a pen is $10 and the price of the pen is $2, consumer surplus is $(10 - 2). If the price of the pen increases to $5, consumer surplus becomes $5 ($10 - $5).

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