Which of the following best describes consumer surplus in the context of willingness to pay?

• A. Consumer surplus is the difference between what a consumer is willing to pay for a good and what the consumer actually pays.
• B. Consumer surplus is the cost of producing one more unit of a good.
• C. Consumer surplus is the total amount paid by all consumers in a market.
• D. Consumer surplus is the price at which the market clears.

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 ready to pay for a good or service based on the value they place on it.
2. Step 2: Recognize that consumer surplus measures the benefit consumers receive when they pay less than their maximum willingness to pay.
3. Step 3: Express consumer surplus mathematically as the difference between willingness to pay and the actual price paid: \(\text{Consumer Surplus} = \text{WTP} - \text{Price Paid}\).
4. Step 4: Differentiate consumer surplus from other economic concepts such as producer cost (cost of producing one more unit), total expenditure (total amount paid by consumers), and market clearing price (price where supply equals demand).
5. Step 5: Conclude that consumer surplus specifically captures the extra value or benefit to consumers, making the correct description the difference between willingness to pay and the actual payment.