A Level Economics AQA Practice Exam

What does consumer surplus represent?

1. The total revenue generated from sales

2. The difference between what consumers are willing to pay and what they pay

3. The profit margin of producers

4. The market price of goods sold

The correct answer is: The difference between what consumers are willing to pay and what they pay

Consumer surplus represents the difference between what consumers are willing to pay for a good or service and what they actually pay. This concept is key to understanding consumer behavior and market efficiency. It illustrates the benefit that consumers receive when they purchase a product for a price lower than the maximum they are willing to spend. For instance, if a consumer is willing to pay £20 for a shirt but buys it for £15, the consumer surplus in this transaction is £5. This surplus can reflect not only individual satisfaction but also the overall value or welfare created by market transactions. When analyzing markets, consumer surplus helps economists understand the effectiveness of a market in delivering value to consumers, as well as potential changes in welfare resulting from shifts in supply or demand. Other options focus on different economic concepts. Total revenue pertains to the income generated from sales, which does not directly account for consumer welfare. Profit margin of producers relates to their income versus costs, lacking the consumer perspective that surplus encapsulates. The market price of goods sold simply states what the item costs, without considering the additional value perceived by the consumer. Thus, the essence of consumer surplus is the additional benefit consumers gain beyond what they pay, highlighting its significance in economic analysis.