Chapter 6
If the price of pizza falls to $3 per slice, we move to point b on the demand curve illustrated in the figure. At the lower price, Alfred and Betty both buy a slice of pizza; Charles, however, still does not buy a slice because he is still unwilling to pay more than $2 for a slice of pizza.
At a price of $3 for a slice of pizza, Alfred now receives some consumer surplus. In particular, he is willing to pay $4 for a slice but only has to pay $3. Thus, Alfred has consumer surplus equal to $4 - $3 or $1. Alfred's consumer surplus is illustrated in the figure by the length of the blue arrow. Betty, though, has no consumer surplus because the amount she is willing to pay, $3, equals the amount she actually pays, $3. Overall, when the price falls to $3 per slice, the total consumer surplus is equal to the arrow shown in the figure.
As the figure shows, at the price of $3, Alfred is happier than before, because he has some consumer surplus; Betty is happy because she is now buying a slice; Charles, however, remains unhappy because he is still not willing to buy a slice. But what will happen if the price falls to $2 per slice? Click on point c.