Multiple Choice
Which statement best explains how economic conditions affect consumers' willingness to buy products?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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Suppose the government imposes an excise tax on a good, raising its market price from 10 to 14. If a consumer's willingness to pay for the good is 18, what is the amount of consumer surplus the consumer receives after the tax?
A
14
B
4
C
0
D
8
Verified step by step guidance1
Recall that consumer surplus is the difference between the consumer's willingness to pay and the price they actually pay for the good.
Identify the consumer's willingness to pay (WTP), which is given as 18 in this problem.
Identify the new market price after the tax, which is 14.
Calculate the consumer surplus after the tax by subtracting the new price from the willingness to pay: \(\text{Consumer Surplus} = 18 - 14\).
Interpret the result as the amount of benefit the consumer receives from purchasing the good at the taxed price.
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