Which of the following statements best describes the relationship between consumer surplus and a consumer's willingness to pay?

• A. Consumer surplus is always equal to the market price of a good.
• B. Consumer surplus is the amount by which the market price exceeds the consumer's willingness to pay.
• C. Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay for a good.
• D. Consumer surplus is the total amount a consumer spends on a good.

Answer: (C)

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 market price is the actual amount the consumer pays to purchase the good.
3. Step 3: Define consumer surplus as the difference between the consumer's willingness to pay and the market price, representing the net benefit or gain the consumer receives from the transaction.
4. Step 4: Express consumer surplus mathematically as \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Market Price}\).
5. Step 5: Conclude that consumer surplus is not equal to the market price, nor is it the total amount spent; rather, it measures the extra value or benefit the consumer gains by paying less than their maximum willingness to pay.