Question

Suppose Brent, Callie, and Danielle each purchase a particular type of electric pencil sharpener at a price of $20. Brent’s willingness to pay was $22, Callie’s willingness to pay was $25, and Danielle's willingness to pay was $30. Which of the following statements is correct?

a. Had the price of the pencil sharpener been $24 rather than $20, only Danielle would have been a buyer.
b. Brent’s consumer surplus is the smallest of the three individual consumer surpluses.
c. For the three individuals together, consumer surplus amounts to $60.
d. The fact that all three individuals paid $20 for the same type of pencil sharpener indicates that each one placed the same value on that pencil sharpener.

Answer 1

Answer: b. Brent’s consumer surplus is the smallest of the three individual consumer surpluses.

Step-by-step explanation:

The willingness to pay represents the highest amount a consumer would be willing to pay for a product.

Consumer surplus is given as willingness to pay less the price of the commodity.

Brent's consumer surplus = $22-20=$2

Callies consumer surplus = $25-$20=$5

Danielle's consumer surplus =$30-$20=$10

The sum of the consumer surplus is $17

Brent has the lowest consumer surplus.

If the price were increased to $24, only Brent won't buy the sharpener because the price is higher than his willingness to pay.

The three customers value the sharpener differently. The value of the product is reflected in their willingness to pay.