📚 Learning Guide
Consumer Surplus and Marginal Analysis
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In a market equilibrium scenario, how does an increase in consumer surplus relate to welfare economics?

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Choose the Best Answer

A

It indicates a decrease in total welfare.

B

It suggests that consumers are paying higher prices.

C

It reflects an increase in the overall welfare of consumers.

D

It has no effect on market efficiency.

Understanding the Answer

Let's break down why this is correct

Answer

In welfare economics, consumer surplus is an important concept that shows how much extra benefit consumers receive when they pay less for a good than what they are willing to pay. When consumer surplus increases, it means that consumers are getting more value from their purchases, which indicates that they are happier and better off. This can happen if prices fall or if consumers' preferences change in a way that they value the product more. For example, if a new smartphone is priced lower than expected, more people can afford it, leading to a larger consumer surplus. Overall, an increase in consumer surplus suggests that the market is functioning well and contributing positively to the overall welfare of society.

Detailed Explanation

When consumer surplus increases, it means consumers are getting more value for their money. Other options are incorrect because Some might think that more consumer surplus means less total welfare, but that's not true; This option suggests that higher prices lead to more consumer surplus, but that's incorrect.

Key Concepts

market equilibrium
welfare economics
Topic

Consumer Surplus and Marginal Analysis

Difficulty

medium level question

Cognitive Level

understand

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