How does the consumer surplus of a perfectly inelastic demand curve differ from

Question

How does the consumer surplus of a perfectly inelastic demand curve differ from the consumer surplus of an inelastic demand curve? Unlike in an inelastic demand curve, in the case of a perfectly inelastic demand curve...

1. Consumer surplus is positive.
2. The highest price a consumer is willing to pay is equal to the price the consumer actually pays.
3. The consumer surplus is equal to producer surplus.
4. The highest price a consumer is willing to pay is infinite.
5. The highest price a consumer is willing to pay is greater than the price the consumer actually pays.

Explanation / Answer

A perfectly inelastic demand curve is vertical. As price changes, there is no change in quantity demanded. Such a demand curve does not meet the price axis at any price.

Therefore, there is no upper limit on the maximum price that consumer is willing to pay - in other words, the highest price consumer is willing to pay is infinite.

Correct option (4).

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