Question

Consumer surplus for an individual and a market

The following graph shows Cho's weekly demand for cheesecake, represented by the blue line. Point A represents a point along her weekly demand curve. The market price of cheesecake is $3.00 per slice, as shown by the horizontal black line.

Cho's Weekly Demand 7.50 6.75 6.00 5.25 4.50 3.75 Price 3.00 2.25 1.50 0.75 0 28 10 12 41 18 20 QUANTITY (Slices of cheesecake) From the previous graph, you can tell that Cho is willing to pay $ $3.00 per slice, the consumer surplus she gains from the 8th slice of cheesecake is S for her 8th slice of cheesecake each week. Because she has to pay only Suppose the price of cheesecake were to fall to $2.25 per slice. At this lower price, Cho would receive a consumer surplus of S slice of cheesecake she buys. from the 8th The following graph shows the weekly market demand for cheesecake in a small economy Use the purple point (dlamond symbol) to shade the area representing consumer surplus when the price (P) of cheesecake is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional consumer surplus when the price falls to $2.25 per slice. Small Economy's Weekly Demand 7.50 6.75 Initial Consumer Surplus (P = $3.00) 6.00 525 4.50 Additional Consumer Surplus (P = $225) 3.75 P = $3.00 3.00 225 P $2.25 1.50 0.75 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Thousands of slices of cheesecake)

Answer 1

a) $ 3.75

b) Consumer surplus is the difference between price which consumer is willing to pay and the actual price of good.

C.S = 3.75 - 3 = $ 0.75

c) New C.S = 3.75 - 2.25 = 1.50

d)

Small Economy's Weekly Demand 7.50 T 6.75T 6.00 Initial Consumer Surplus (P $3.00) 525 Demand a 4.50 Additional Consumer Surplus (P- $2.25) 3.75 P $3.00 3.00 225 P $2.25 1.50 0.75 0 20 40 60 80 00 120 140 160 180 QUANTITY (Thousands of slices of cheesecake) 200