Question

Use the table below to answer the following question. Units 1 S2 3 Maximum Willingness to Pay $14 12 Market Price $10 10 10 10 10 10 What is the value of consumer surplus?

Answer 1

The optimal price would be $10 because at this price level, consumer's willingness to pay is equal to the price of the product.

The formula for consumer surplus = Willingness to pay - price of the product.

Those who can afford the price of $10, will only purchase the product.

It means $14, $12 and $10

So for $14, CS = 14-10 = 4

For $12, CS = 12-10 = 2

For $10, CS = 10-10 = 2

Adding all these values, we get, 4+2+0= $6

Hence, the consumer surplus would be $6