Question

Albin’s demand function for pretzels is given by the equationD(p) =40−10p. He is currently consuming 20 pretzels at a price of $2 per pretzel.(a) How much (net) consumer’s surplus does Albin get from this consumption?(b) If the price of pretzels rises to $3 per pretzel, how many pretzels will he consume? Whatis the change in Albin’s consumer’s surplus?

Answer 1

currently it as a 10 dollars consumers surplus

if price increase to 3 dollars per pretzel it will consume 10 units

the consumer surplus will decrease to 5 dollars

Step-by-step explanation:

the consumer surpplus is the area of the demand function above market price.

We need t osolve for the intersection point: (at which his demand is zero):

0 = 40 - 10p

p = 40 / 10 = 4

Then we solve for the area of a triangle:

Y axis is market price less intersection point price

while X axis is the equilibrium quanty:

Y = 4 - 2 = 2

X = 20

Area above market price:

20 units * 2$ /2 = $20

If price goes up to $3 Albin's demand will be of:

D(p) = 40 - 10(3) = 40 - 30 = 10

consumer surpls:

10 units x (4-3) / 2 = 5 dollars