What effect does an increase in demand have on consumer surplus in the market?

An increase in demand generally leads to a rise in the equilibrium price and quantity in the market. Consumer surplus is defined as the difference between what consumers are willing to pay for a good or service and what they actually pay for it. When demand increases, the price consumers are willing to pay also rises, leading to a larger area between the demand curve and the price level on the graph that represents consumer surplus.

As the equilibrium price increases due to the rise in demand, existing consumers who were already willing to purchase at a lower price benefit from the surplus that exists between the new price and the price they are willing to pay. Additionally, new consumers may enter the market at this higher price because their willingness to pay aligns with the increased demand.

Overall, the total area representing consumer surplus increases as a result of this shift in demand, confirming that an increase in demand leads to an increase in consumer surplus.