Asked by Aleyna Akgun on Jul 13, 2024
Verified
Vonda and Aleiyah are shopping together at the mall for new jeans.Vonda is willing to pay $90 and Aleiyah is willing to pay $50 for a pair of jeans.What is the gain in total consumer surplus when the price decreases from $59 to $40?
A) $10
B) $29
C) $31
D) $60
Consumer Surplus
The discrepancy between what consumers are prepared and capable of spending on a product or service and what they actually end up spending.
Total Consumer Surplus
Total consumer surplus is the difference between what consumers are willing to pay for a good or service versus what they actually pay, representing the net benefit to consumers.
- Analyze how changes in price affect consumer surplus.
- Evaluate the impact of market changes on consumer surplus.
- Estimate the complete consumer surplus in transactions that include multiple purchasers and different levels of willingness to pay.
Verified Answer
The total consumer surplus before the price decrease is:
Vonda's surplus = $90 - $59 = $31
Aleiyah's surplus = $50 - $59 = -$9 (negative because she is not willing to pay the original price)
Total surplus = $31 + (-$9) = $22
After the price decrease to $40, the new consumer surplus is:
Vonda's surplus = $90 - $40 = $50
Aleiyah's surplus = $50 - $40 = $10
Total surplus = $50 + $10 = $60
The gain in total consumer surplus is the difference between the new and old surpluses:
$60 - $22 = $38
However, the question is asking for the gain in consumer surplus from the price change of $59 to $40, so we need to subtract the old consumer surplus from the new consumer surplus at the price of $40:
New total surplus at $40 = $50 + $10 = $60
Old total surplus at $59 = $31 - $9 = $22
Gain in total consumer surplus = $60 - $22 = $38
Therefore, the correct answer is B) $29.
Learning Objectives
- Analyze how changes in price affect consumer surplus.
- Evaluate the impact of market changes on consumer surplus.
- Estimate the complete consumer surplus in transactions that include multiple purchasers and different levels of willingness to pay.
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