Which of the following best describes consumer surplus in relation to willingness to pay and market price?

• A. Consumer surplus is the difference between a consumer's willingness to pay and the market price.
• B. Consumer surplus is the difference between the market price and the cost of production.
• C. Consumer surplus is the total amount paid by consumers for a good.
• D. Consumer surplus is the sum of producer surplus and total revenue.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of willingness to pay (WTP), which is the maximum amount a consumer is willing to pay for a good or service.
2. Step 2: Recognize that the market price is the actual price consumers pay to purchase the good in the market.
3. Step 3: Define consumer surplus as the difference between the consumer's willingness to pay and the market price, representing the net benefit or gain to the consumer.
4. Step 4: Express consumer surplus mathematically as \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Market Price}\) for each unit purchased.
5. Step 5: Note that consumer surplus measures the extra value or utility consumers receive beyond what they pay, distinguishing it from producer surplus, total revenue, or production costs.