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 that consumer surplus is the area between the demand curve and the price level, up to the quantity demanded.
2. Identify the initial consumer surplus when the price is \$2. This is the area of the triangle formed by the price, the demand curve, and the quantity demanded at that price.
3. Calculate the new consumer surplus when the price increases to \$3. The new consumer surplus is the area of the smaller triangle formed by the new price, the demand curve, and the new quantity demanded.
4. Determine the change in consumer surplus by finding the difference between the initial and new consumer surplus areas.
5. Analyze the options given in the problem to see which one aligns with the calculated change in consumer surplus, considering the decrease in consumer surplus due to the price increase.