Question

The consumers' surplus is worked out by

• A. What the consumer is willing to pay - what he actually pays
• B. What the consumer paid - Total utility gained
• C. What the consumer is willing to pay - marginal utility gained
• D. What the consumer paid - balanced amount left with consumer

Hint:

Consumer's Surplus $= \text{Potential Price (Willing to pay)} - \text{Actual Price Paid}$.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Alfred Marshall formalized the concept of Consumer's Surplus in welfare economics.

Step 2: Key Formula or Approach:
Consumer's Surplus is the economic measure of consumer benefit, defined as the excess of the total price a consumer is willing to pay rather than go without the commodity over the real market price paid:
\[\text{Consumer's Surplus} = \text{Willingness to Pay} - \text{Market Price Paid}\]

Step 3: Detailed Explanation:
Therefore, consumer's surplus is worked out by 'What the consumer is willing to pay - what he actually pays'.

Step 4: Final Answer:
Hence, the correct option is (A).