If Paul buys a tennis racket for $125 but was willing to pay $200, what is his consumer surplus?

To calculate consumer surplus, consider the difference between what a consumer is willing to pay for a good and what they actually pay for it. In this scenario, Paul was willing to pay $200 for the tennis racket, but he only paid $125.

The calculation for consumer surplus is straightforward: subtract the purchase price from the maximum price the consumer is willing to pay.

So, consumer surplus = Willingness to pay - Purchase price = $200 - $125 = $75.

This means that Paul experiences a consumer surplus of $75, which indicates the benefit he receives from purchasing the racket at a lower price than he was willing to pay. Consumer surplus reflects the additional value that consumers derive from transactions, capturing the difference between their maximum willingness to pay and the actual price they pay.