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Unformatted text preview: ANSWER:1 a. Consumer surplus measures the benefit to buyers of participating in a market. It is measured as the amount a buyer is willing to pay for a good minus the amount a buyer actually pays for it. For an individual purchase, consumer surplus is the difference between the willingness to pay, as shown on the demand curve, and the market price. For the market, total consumer surplus is the area under the demand curve and above the price, from the origin to the quantity purchased. b. Because the demand curve shows the maximum amount buyers are willing to pay for a given market quantity, the price given by the demand curve represents the willingness to pay of the marginal buyer. c. When the price of a good falls, consumer surplus increases for two reasons. First, those buyers who were already buying the good receive an increase in consumer surplus for two reasons....
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This note was uploaded on 08/22/2011 for the course ACCOUNTING 201 taught by Professor Stevejoseph during the Winter '11 term at Aarhus Universitet.
- Winter '11