After you have worked through this section of the learning unit, you should be able to:
- illustrate and explain with the aid of a diagram what happens to total consumer surplus if the price change
In terms of our diagram, the following happens:
Do the following activity to see if you understand what happens to consumer surplus when the price changes:
The following diagram indicates the market demand for ice cream and the consumer surplus at a market price of R10:
- Use the diagram to illustrate what happens to total consumer surplus if the price increases to R15.
- Use the diagram to illustrate the consumer surplus lost because fewer people are buying ice cream.
- Use the diagram to illustrate the consumer surplus lost because existing buyers are paying a higher price.
a. An increase in the price decreases the consumer surplus. The consumer surplus that is lost is indicated by the area 10-15-C-R.
b. The loss in consumer surplus because less people are buying ice cream is the area F-C-R.
c. The consumer surplus lost because existing buyer pay a higher price is the area 10-15-C-F.