The demand curve for Nickelback's new album is downward sloping. At a price of \$2, nationwide demand is 100 albums. If the price rises to \$3, what happens to consumer surplus?

• A. It falls by less than \$100
• B. It rises by more than \$100
• C. It falls by more than \$100
• D. It rises by less than \$100

Answer: (A)

Verified step by step guidance

1. Understand the concept of consumer surplus: Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay. It is represented by the area between the demand curve and the price level, up to the quantity demanded.
2. Identify the initial consumer surplus: At a price of \$2, the consumer surplus is the area of the triangle formed by the demand curve, the price line at \$2, and the vertical axis at the quantity of 100 albums.
3. Determine the new consumer surplus: When the price increases to \$3, the consumer surplus is reduced to the area of the triangle formed by the demand curve, the price line at \$3, and the vertical axis at the new quantity demanded (which will be less than 100 albums).
4. Calculate the change in consumer surplus: The change in consumer surplus is the difference between the initial and new consumer surplus areas. This change is represented by the area of the trapezoid formed between the two price levels (\$2 and \$3) and the demand curve.
5. Analyze the options: Compare the calculated change in consumer surplus to the given options. Since the demand curve is downward sloping, the reduction in consumer surplus will be less than the total revenue lost from the decrease in quantity demanded, which helps determine the correct answer.