Question

6. (chapter 5: consumer surplus) The price of Steak Burritos in Chipotle is $5.50. I would be willing to pay $10 dollars for the first Steak Burrito, $8 for the second, $6 for the third, $4 for the fourth, and nothing for the fifth or any additional burritos. How many burritos would I buy? A. compute total consumer surplus, and illustrate using a graph. B. Continuing from A, if the price of steak burritos fall to $3, how many burritos would I buy and what is the change in my total consumer surplus compared to the situation in 7? Illustrate using a graph.

Answer 1

A. Consumer will buy 3 Steak Burritos as the consumer is willing to pay more for the first three burritos than the price. But for the fourth burrito consumer is willing to pay less than the price.

Total consumer surplus= Price consumer is willing to pay- Actual price

=(10-5.5)+(8-5.5)+(6-5.5)= 4.5+2.5+0.5= $7.5

B. If price falls to $3, consumer will consume 4 Steak Burritos as for the fourth Burrito also consumer is willing to pay more than the price. But for fifth Burrito consumer is not willing to pay anything.

Consumer surplus= =(10-3)+(8-3)+(6-3)+ (4-3)= 7+5+3+1= $16

Change in total Consumer surplus= $16-$7.5= $8.5

Price -P= $5.5 -P=83 1 2 3 4 5 Quantity