Tara often buys fish and is able to buy it for less than she

Tara often buys fish and is able to buy it for less than she is willing-to-pay. She later learns that fish has more health benefits than she realised. She now values fish even more than before. If the market price of fish does not change then:

Select one:

a. Tara’s consumer surplus could go up or down

b. Tara’s consumer surplus will decrease

c. Tara’s consumer surplus will be unaffected because the price has not changed

d. Tara’s consumer surplus will increase

Solution

Consumer surplus is denoted by the difference between consumer\'s highest willingness to pay and the market price at which they get the product. For example, if a consumer willing to pay $6 for one CD but the market price is $4 then the consumer surplus is $2.

When Tara increases the value of fish because of health benefit, her willingness to pay will be increased. As willingness to pay increase keeping market price unchanged, consumer surplus will be increased. Option d is correct.