Question

Suppose the market price is $5. There are three consumers in the market. The consumer who purchases the first unit of output is willing to pay $12; the consumer purchasing the second unit of output is willing to pay $8; and the consumer buying the third unit of output is willing to pay $7. Total consumer surplus across these three consumers is

Answer 1

Total consumer surplus is $12

Step-by-step explanation:

Consumer surplus can be defined as the difference between what the consumer is willing to pay for a particular product and its market price.

Given:

Market price of product is $5

Consumer's willingness to pay for 1st unit = $12

Consumer surplus of first customer = 12-5 = $7

Consumer's willingness to pay for 2nd unit = $8

Consumer surplus of second customer = 8-5 = $3

Consumer's willingness to pay for 3rd unit = $7

Consumer surplus of first customer = 7-5 = $2

Total consumer surplus = 7+3+2

= $12