Consider the diagram below which shows a demand curve (d).
Total expenditure on a commodity is represented by the area TUVW. Consumer surplus is represented by?
A. The area VWX
B. The area XTUV
C. XW/XT
D. TU/UV
Correct Answer: Option A
A. The area VWX
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.
