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Difficulty: EasyConcept and Calculation of Consumer Surplus

A consumer in a local market is willing to pay a maximum of ₦1,200 for a pair of sandals, but purchases them at the prevailing market price of ₦800. What is the value of the consumer surplus derived from this purchase?

  1. ₦400Answer
  2. B
    ₦800
  3. C
    ₦1,200
  4. D
    ₦2,000

Answer

₦400
The consumer surplus is ₦400 because it represents the difference between the maximum amount the consumer was prepared to pay (₦1,200) and the price actually paid in the market (₦800).

Step-by-Step Solution

1
Identify the consumer's maximum willingness to pay and the actual price paid in the market.
Maximum Willingness to Pay = ₦1,200; Market Price Paid = ₦800.
Consumer surplus measures the economic benefit received by paying less than maximum willingness.
2
Apply the consumer surplus formula: Consumer Surplus = Maximum Willingness to Pay - Actual Price Paid.
Consumer Surplus = ₦1,200 - ₦800 = ₦400.
Subtracting actual expenditure from total monetary valuation yields the net benefit.

Key Concept

Consumer surplus is the difference between the maximum amount a consumer is willing to pay for a commodity and the actual amount paid.
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Topics

Concept and Calculation of Consumer Surplus

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