Consider the diagram below which shows a demand curve (d).
Total expenditure on a commodity is represented by the area TUVW. Consumer’s surplus is represented by___________
-
The area VWX
- The area XTUV
- \(\frac {XW} {XT}\)
- \(\frac {TU} {UV}\)
The correct answer is: A
Explanation
Consumer surplus is the difference between what a consumer budgeted to have a commodity and the actual amount he paid to have the commodity.
From the diagram, the consumer budgeted TUX while the market price is TUVW, therefore, consumer surplus is TUX - TUVW which is equal to VWX.