Question

The following graph shows Eleanor's weekly demand for apple pie, represented by the blue line. Point A represents a point along her weekly demand curve. The market price of apple pie is $3.00 per slice, as shown by the horizontal black line. From the previews graph, you can tell that Eleanor is willing to pay for her 8th slice of apple pie each week. Because she has to pay only $3.00 per slice, the consumer surplus she gains from the 8th slice of apple pie is. Suppose the price of apple pie were to fall to $52.25 per slice. At this lower price, Eleanor would receive a consumer surplus of from the 8th slice of apple pie she buys. The following graph shows the weekly market demand for apple pie in a small economy. Use the purple point (diamond symbol) to shade the area representing consumer surplus when the price (P) of apple pie is $3.00 per slice. Then, use the green point (triangle symbol) to shade the area representing additional consumer surplus when the price falls to $2 25 per slice.

Answer 1

You can observe the graph to answer this question. You can see, 8^th unit of consumption is denoted by point A. At this consumption level, price is $3.75. Therefore, Eleanor is willing to pay $3.75 for the 8^th slice of apple pie each week.

The consumer surplus she gains from the 8^th slice of apple pie is $3.75 - $3.00 =$0.75

If price falls to $2.25, she will receive a consumer surplus of $3.75 - $2.25 =$1.50

The initial consumer surplus has been shaded in violet and the additional consumer surplus has been shaded in green:

Small Economy's Weekly Demand 7.50 8.75 6.00 5.25 mand 4.50 nitial Consumer Surpius (P $3.00) Additional Consumer Surplus (P-$225) 3.75 3.00 2.25 1.50 0.75 P 52.25 0 20 40 0 80 100 120 140 160 180 200 QUANTITY (Thousands of alices of apple pie)

Note that consumer surplus is shown by the region below the demand curve and above the price line.