Which of the following best describes consumer surplus in relation to a consumer's willingness to pay?

• A. Consumer surplus is the maximum price a seller is willing to accept for a good.
• B. Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay.
• C. Consumer surplus is the total amount a consumer spends on a good.
• D. Consumer surplus is the price at which a good is sold in the market.

Answer: (B)

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 the actual price paid by the consumer in the market is often less than their willingness to pay, creating a difference between these two amounts.
3. Step 3: Define consumer surplus as the difference between the consumer's willingness to pay and the actual price paid, which represents the net benefit or gain the consumer receives from the transaction.
4. Step 4: Express consumer surplus mathematically as \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Price Paid}\).
5. Step 5: Conclude that consumer surplus measures the extra value or utility a consumer gains because they pay less than what they were willing to pay, distinguishing it from seller's price or total expenditure.