Question

Jane is willing to pay $4 for the first cup of coffee a day, $2.50 for the second cup, and $1 for the third cup, after which she won't buy any coffee. The price of a cup of coffee is $2.40. Jane's consumer surplus from the coffee she buys is ________ per day.

Answer 1

Jane's consumer surplus from the coffee she buys per day is $0.30.

Step-by-step explanation:

Jane's consumer surplus can be calculated by finding the difference between her willingness to pay for each cup of coffee and the actual price she pays.

For the first cup, Jane is willing to pay $4 but only pays $2.40, so her consumer surplus is $4 - $2.40 = $1.60.

For the second cup, Jane is willing to pay $2.50 but only pays $2.40, so her consumer surplus is $2.50 - $2.40 = $0.10.

For the third cup, Jane is willing to pay $1 but only pays $2.40, so her consumer surplus is $1 - $2.40 = -$1.40 (negative surplus because she is actually paying more than she is willing to pay).

Since Jane won't buy any more coffee after the third cup, her total consumer surplus for the day is $1.60 + $0.10 + (-$1.40) = $0.30.

Answer 2

$1.70

Step-by-step explanation:

Data provided in the question:

Amount Jane is willing to pay for the first cup of coffee = $4

Amount Jane is willing to pay for the second cup of coffee = $2.50

Amount Jane is willing to pay for the third cup of coffee = $1

Price of a cup of coffee = $2.40

Now,

The consumer surplus is given as:

Consumer surplus = Amount consumer willing to pay - Price of the product

Thus,

Consumer surplus = $4.00 - $2.40

or

Consumer surplus = $1.70