Question

Demand Curve & Consumer Surplus.

$700 $600 $500 $400 $300 $200 $100 D, $Value K Y 0 10 20 30 40 50 60 70 80 90Qd

Assume the $Price for Puppies is $200.

1. What is the buyer’s optimal (best) quantity demanded, Qd?

2. What Area shows buyer’s net gain or ‘Consumer Surplus’?

3. What Area shows buyer’s Total Dollar Value (Total Willingness to Pay)?

4. What Area shows buyer’s Total Expenditures (spending on good)?

5. Number example of Consumer Surplus: Lara wants to buy a new Surf board. She is willing to spend $650 maximum. The Price of one she wants to buy is $530. What is her Consumer Surplus or net gain measured in dollars when she buys it?

Answer 1

1. Buyer's best quantity demanded is 80 because it is the largest quantity demanded at $200 price.

2. Consumer surplus is RGT because maximum price consumer is gaining is $700 snd price is $200 so he is gaining $500 as consumer surplus.

3. Buyer is total willing to pay at the area RKXT because it is the maximum price ($700) and minimum price ($100) that he is willing to pay.

4. Total expenditure spending on good is GTXK

5. Consumer surplus: $650-530=$120