Which of the following best explains why consumer surplus arises in a market?

• A. Consumer surplus is eliminated when demand is perfectly elastic.
• B. All consumers pay exactly what they are willing to pay for a good.
• C. Some consumers are willing to pay more for a good than the market price.
• D. Consumer surplus occurs only when the government sets a price ceiling.

Answer: (C)

Verified step by step guidance

1. Understand the concept of consumer surplus: it is the difference between what consumers are willing to pay for a good and what they actually pay.
2. Recognize that consumer surplus arises because different consumers have different maximum willingness to pay, but the market price is the same for all.
3. Note that if all consumers paid exactly what they were willing to pay, there would be no consumer surplus, as no one would gain extra benefit.
4. Consider that consumer surplus is not dependent on government intervention like price ceilings; it naturally occurs in markets with downward-sloping demand curves.
5. Conclude that consumer surplus arises because some consumers are willing to pay more than the market price, allowing them to gain extra benefit from the transaction.