Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumer surplus increases as consumers are less sensitive to price changes
B
Consumer surplus decreases as consumers become more sensitive to price changes
C
Consumer surplus remains unchanged regardless of price elasticity
D
Consumer surplus increases only if the quantity demanded increases
Understanding the Answer
Let's break down why this is correct
Answer
When the price elasticity of demand increases, it means that consumers are more responsive to changes in price. This usually happens when there are many substitutes available or when the product is not a necessity. As prices rise, consumers may quickly decide to buy less or switch to a different product, which can reduce the overall quantity sold. Because consumers are more sensitive to price changes, their willingness to pay at different price levels changes, potentially leading to a decrease in consumer surplus. For example, if the price of a popular soda increases significantly, many consumers might choose to buy a different drink instead, resulting in a lower consumer surplus for soda than before.
Detailed Explanation
When demand is more elastic, consumers react strongly to price changes. Other options are incorrect because This answer suggests consumers are less affected by price changes; This option claims that consumer surplus does not change.
Key Concepts
consumer surplus
price elasticity of demand
Topic
Consumer Surplus and Marginal Analysis
Difficulty
medium level question
Cognitive Level
understand
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