Question

Amazon has a \"Lightning Deal\" where it slashes the price of one item. At 3:15 PM today, they announced that the item was a new tablet with a sales price of $150, less than half the original price. The table below contains the maximum willingness to pay for five college students wanting to buy a tablet on Amazon.

students willing to pay

Amanda $500

David $400

Lily $300

Anthony $200

Julio $100

1. What is total consumer surplus for the five students?

2. If the price increases from $150 to $350, what is the change in total consumer surplus? Pay attention to the direction of change.

Suppose that Michelle buys a cappuccino from Paul\'s Cafe and Bakery for $6.25. Michelle was willing to pay up to $8.75 for the cappuccino and Paul\'s Cafe and Bakery was willing to accept $2.25 for the cappuccino. Based on this information, answer the questions below.

a)Michelle\'s consumer surplus is equal to?

b) Paul\'s Bakery\'s producer surplus is equal to?

Answer 1

When the price is S150, then Julio cannot afford the tablet and as his willingness to pay is less than the price. Therefore, the consumer surplus of Julio will be zero. For the rest of the consumers, the consumersurplus will be their willingness to pay minus the price. 1. Total consumer surplus Amanda's consumer surplus+ David's consumersurplus + Lily's consumer surplus+ Anthony's consumer surplus -(500 150)+ (400 150)+(300 150) + (200-150) -350+250 + 150 50 800 When the price is $350, only Amanda and David can afford the tablet. The consumer surplus of the rest of the consumers will be zero. 2. Total consumersurplusAmanda's consumer surplusDavid's consumersurplus (500 350)+ (400-350) - 150+ 50 200 Change in consumer surplus S200 $800 $600 The consumer surplus has decreased by $600.