In Chapter 3 we introduced the concept of consumer surplus as measured by the area above market price and below an individual’s demand for a good. This problem asks you to think about that concept for the market as a whole.

a. Consumer surplus in the market as a whole is simply the sum of the consumer surplus received by each individual consumer. Use Figure to explain why this total consumer surplus is also given by the area under the market demand curve and above the current price.

b. Use a graph to show that the loss of consumer surplus resulting from a given price rise is greater with an inelastic demand curve than with an elastic one. Explain your result intuitively.
c. How would you evaluate the following assertion: ‘‘the welfare loss from any price increase can be readily measured by the increased spending on a good made necessary by that priceincrease.’’

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Px Xt (a) Individual 1 (b) Individual 2 (c) Market demand