In the context of consumer surplus and willingness to pay, which of the following best describes consumer surplus?

• A. The cost of producing a good
• B. The price at which the market clears
• C. The total amount paid by all consumers for a good
• D. The difference between what a consumer is willing to pay for a good and what they actually pay

Answer: (D)

Verified step by step guidance

1. Understand the concept of willingness to pay (WTP), which is the maximum amount a consumer is ready to pay for a good or service based on the value they place on it.
2. Recognize that the actual price paid by the consumer is often less than their willingness to pay, especially in competitive markets.
3. Define consumer surplus as the difference between the consumer's willingness to pay and the actual price they pay: \(\text{Consumer Surplus} = \text{WTP} - \text{Price Paid}\).
4. Interpret consumer surplus as a measure of the benefit or gain consumers receive because they pay less than what they were willing to pay.
5. Note that consumer surplus is not related to production costs, market clearing price alone, or total amount paid, but specifically to the difference between willingness to pay and actual payment.