Refer to Figure 7-1. When the price is p_1, consumer surplus is:

• A. the area between the supply and demand curves from zero to the equilibrium quantity
• B. the area below the price p_1 and above the supply curve
• C. the area between the demand curve and the price p_1, from zero to the quantity purchased
• D. the area above the price p_1 and below the supply curve

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of consumer surplus. Consumer surplus is the difference between what consumers are willing to pay for a good (represented by the demand curve) and what they actually pay (the market price). It measures the net benefit to consumers from participating in the market.
2. Step 2: Identify the relevant curves and price on the graph. The demand curve shows the maximum price consumers are willing to pay for each quantity, and the price p_1 is the actual market price consumers pay.
3. Step 3: Determine the quantity purchased at price p_1 by finding the point where the price line p_1 intersects the demand curve. This quantity represents how much consumers buy at that price.
4. Step 4: Recognize that consumer surplus is the area between the demand curve and the price line p_1, from zero up to the quantity purchased. This area captures the difference between willingness to pay and actual payment for all units bought.
5. Step 5: Conclude that the consumer surplus is NOT the area between supply and demand, nor the area below price p_1 and above supply, but specifically the area between the demand curve and price p_1, from zero to the quantity purchased.