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WIllingness to Pay and Consumer Surplus definitions

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  • Willingness to Pay
    Maximum dollar amount a consumer values a good, determining if a purchase is worthwhile compared to the market price.
  • Consumer Surplus
    Extra benefit received when a consumer pays less than their maximum value for a good, measured in dollars.
  • Market Price
    Actual amount paid for a good in the market, used as a reference to calculate consumer benefit.
  • Demand Curve
    Graphical representation showing the relationship between price and quantity demanded, reflecting consumer values.
  • Marginal Benefit
    Additional value or satisfaction a consumer gains from consuming one more unit of a good.
  • Total Consumer Surplus
    Sum of all individual consumer benefits in a market, represented as the area between the demand curve and price.
  • Triangle Area
    Geometric method for calculating total consumer benefit on a graph, using one half base times height.
  • Quantity Demanded
    Number of units consumers are willing to purchase at a specific price, shown on the horizontal axis of a graph.
  • Rational Choice
    Decision-making process where consumers only buy goods if the benefit exceeds or equals the price.
  • Free Benefit
    Value received by consumers above what they pay, resulting from paying less than their maximum willingness.
  • Price Decrease
    Market event leading to increased consumer benefit, as more buyers gain surplus and existing buyers receive greater value.
  • Individual Surplus
    Benefit one consumer receives from a transaction, calculated as the difference between value and price.
  • Base
    Horizontal distance on a graph representing the range of quantities over which consumer benefit is measured.
  • Height
    Vertical distance on a graph between the highest willingness to pay and the market price, used in surplus calculations.