Question

3. . If a demand curve is given by Q = 300 –12P and that consumers face a price of $15/unit. How much would consumers be spending on this product?

B) What is the maximum amount of money that consumers are willing to spend on this product?

C) Calculate consumers’ surplus in this market.

D) Graph this demand curve and identify consumers’ surplus in that diagram at P = $15/unit.

Answer 1

If the Demand curve is  Q = 300 –12P, and the prevailing price of the commodity is $15/unit, then the consumer will consume-

Q = 300 –12(15) = 300-180 = 120 units.

Thus, the consumer consumes 120 units and spends (120×15) $1800 on whole.

B. Maximum willingness to pay is equal to the point where the quantity is equal to zero,

Q = 300 –12P

=> 300 -12P = 0

=> 12P = 300

=> P = $25/unit

Thus, the consumer will pay $25/unit at max according to his demand equation.

C. Consumers surplus is equal to ½×(Maximum willingness to pay - equilibrium price)×equilibrium quantity

= 1/2× ($25-$15) × 120

= 1/2 × 10 × 120 = $ 600

D.