Question

At the student center cafeteria, a half-pound burrito costs about $7. What is your willingness to pay for a half-pound burrito at the Student Center, and what does that say about your consumer surplus the benefit that the   Student Center cafeteria marketplace may provide to you?

Answer 1

Cost of half pound burrito = $7

Willingness to pay can be calculated by the utility achieved from consuming burrito. If utility is more than or equal to price paid for burrito, then you would be willing to consume it. Consumer surplus occurs when the price they are willing to pay for burrito is more than they actually pay.

Let say if the utility from consuming burrito is worth $5. You would not be willing to pay more than it. If you are able to get it at $4, the consumer surplus is $1 or if the utility is worth $9 and you are able to get it for $7, your consumer surplus is $2.