What does height represent in the consumer surplus calculation?

In the calculation of consumer surplus, height specifically represents the difference between a consumer's reservation price and the market equilibrium price. The consumer's reservation price is the maximum price they are willing to pay for a good or service, reflecting the value or utility they expect to gain from it. When the market price is lower than this reservation price, the difference denotes the benefit or surplus that consumers receive from purchasing the good at the market price.

Consumer surplus is essentially the area above the market price and below the demand curve, which illustrates the additional benefit that consumers receive from spending less than what they are prepared to pay. This concept is fundamental in understanding how consumers benefit from market transactions and helps illustrate the efficiency of market equilibria. Recognizing this height allows economists to visualize and quantify the advantages consumers experience due to favorable market conditions.

Other options such as market equilibrium price, tax revenue, or quantity supplied do not capture this specific relationship between individual consumer valuations and the prevailing market price, which is central to calculating consumer surplus.