Question

Suppose a good has an equilibrium price of $100. Avi is willing to pay $110 for this good while Raj is willing to pay $80 for it. What effect will reallocating a good or service from Avi to Raj have on consumer surplus and why?

Answer 1

Reallocating a good or service from Avi to Raj will decrease consumer surplus.

Step-by-step explanation:

Reallocating a good or service from Avi to Raj will decrease consumer surplus. C

onsumer surplus is the benefit that consumers receive when they are willing to pay more for a good than its equilibrium price. In this case, Avi is willing to pay $110 for the good, while Raj is only willing to pay $80.

If the good is reallocated from Avi to Raj, Raj will pay an amount closer to his willingness to pay, resulting in a smaller consumer surplus.