Suppose the market price for a good is \$8, and the demand curve shows that consumers are willing to pay \$12 for the first unit, \$10 for the second unit, and \$8 for the third unit. What is the total consumer surplus generated in this market?

• A. \$8
• B. \$6
• C. \$4
• D. \$2

Answer: (B)

Verified step by step guidance

1. Identify the market price, which is given as \$8. This is the price consumers actually pay for each unit of the good.
2. List the maximum willingness to pay for each unit from the demand curve: \$12 for the first unit, \$10 for the second unit, and \$8 for the third unit.
3. Calculate the consumer surplus for each unit by subtracting the market price from the willingness to pay, but only if the willingness to pay is greater than the market price. For each unit, use the formula: \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Market Price}\).
4. Sum the consumer surpluses for all units where the willingness to pay exceeds the market price to find the total consumer surplus: \(\text{Total Consumer Surplus} = \sum (\text{Willingness to Pay}_i - \text{Market Price})\) for all \(i\) where \(\text{Willingness to Pay}_i > \text{Market Price}\).
5. Interpret the total consumer surplus as the net benefit consumers receive from purchasing the good at the market price, which reflects the difference between what they are willing to pay and what they actually pay.