When a market is in equilibrium, there is no consumer surplus. We know this beca

Question

When a market is in equilibrium, there is no consumer surplus. We know this because in equilibrium, the market price is equal to the price consumers are willing to pay for the good.

1. The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed.
2. The student is incorrect because consumer surplus equals the price consumers are willing to pay for a good, which is a positive amount.
3. The student is incorrect because the market price is greater than marginal cost.

Explanation / Answer

Correct option (1).

Consumer surplus captures the difference between the maximum price consumers are willing to pay, and the price they actually pay. The maximum price they're willing to pay will be equal to the actual price only for the last unit of output consumed. Otherwise the difference is always positive, therefore consumer surplus > 0

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