What happens to consumer surplus when market prices fall?

When market prices fall, consumer surplus increases because consumer surplus is defined as the difference between what consumers are willing to pay for a good or service and what they actually pay.

When the price decreases, consumers who are already willing to pay more than the new lower price now experience a greater benefit, since they are paying less for the same product. This not only increases the surplus for those existing consumers but often attracts new consumers to the market who are now willing to purchase the good or service at the lower price. The total consumer surplus reflects not only the already existing consumers benefitting from the price drop but also the additional surplus generated from new consumers entering the market.

Thus, the end result is an overall increase in consumer surplus in response to a reduction in market prices. Understanding this relationship helps illustrate the concept of consumer welfare and the effects of pricing strategies in microeconomics.