Question

2. Individual demand and consumer surplus 

Consider the market for antique cars. The market price of each antique car is $300,000, and each buyer demands no more than one antique car 

Suppose that Gilberto is the only consumer in the antique car market. His willingness to pay for an antique car is $480,000. Based on Gilberto's Willingness to pay, the following graph shows his demand curve for antique cars. 

Shade the area representing Gilberto's consumer surplus using the green rectangle (triangle symbols).

Now, suppose another buyer, Juanita, enters the market for antique cars, and her willingness to pay is $360,000. 

Based on Juanita's and Gilberto's respective willingness to pay, plot the market demand curve on the following graph using the blue points (circle symbol). Next, shade Gilberto's consumer surplus using the green rectangle (triangle symbols), and shade Juanita's consumer surplus using the purple rectangle (diamond symbols). 

Note: Plot your points as a step function in the order in which you would like them connected. Line segments will connect the points automatically.

Suppose Lorenzo is willing to pay a total of $240,000 for an antique car. 

True or False: Keeping his maximum willingness to pay for an antique car in mind, Lorenzo will not buy the antique car because it would be worth less to him than its market price of $300,000 

• True 

• False

Answer 1

Part A

the consumer surplus is the amount that the difference between people willing to pay and actually paid for that commodity. Here, Gilberto’s willingness to pay for an antique car is $480,000 and the market price of the car is $300,000. So, the consumer surplus is $180,000. Graphically,

Part B

Here, the buyer Juanita willingness to pay for an antique car is $360,000 and the market price of the car is $300,000. So, the consumer surplus is $60,000. Graphically,

Part C

True

Here the market price is $300,000. But lorenzo is willing to pay only $240,000. So he will not buy the car.