A market with a high demand elasticity offers to consumers ___________ relative to a market with low demand elasticity

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BlackTom AI · Accepted Answer

When evaluating how elasticity affects consumer welfare, we consider how price changes translate into quantity demanded and the resulting area under the demand curve that consumers value more than the paid price.
Option 1: 'more consumer surplus' — This is plausible because with high demand elasticity, consumers are more responsive to price changes, so a given price level tends to capture a larger portion of the total willingness to pay in terms of the area above price and below the demand curve. The flatter (more elastic) demand curve means that reductions in price attract a larger increase in quantity, expanding the consumer-surplus area.
Option 2: 'less consumer surplus' — If demand is less elastic (more inelastic), price changes affect quantity less, typically yielding a smaller gain in consumer surplus for the same price shift. Therefore, saying high elasticity yields less surplus contradicts the typical welfare interpretation.
Option 3: 'equal consumer surplus' — It would be incorrect to claim equal surplus across markets with different elasticities because elasticity changes how much of the willingness-to-pay curve sits above the price line; the areas (surpluses) generally differ due to differing responses in quantity and valuation.
Option 4: 'unequal consumer surplus' — While it is true that surpluses can differ across markets with different elasticities, this option is too vague and does not specify the direction or the underlying mechanism. It is less informative than stating that higher elasticity tends to increase consumer surplus relative to lower elasticity, given the standard interpretation of welfare changes.

In summary, the reasoning favors the idea that a market with high demand elasticity allows consumers to benefit more from price levels because more buyers gain from price changes and the quantity response broadens the surplus area on the demand curve.

A market with a high demand elasticity offers to consumers ___________ relative to a market with low demand elasticity

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