Question

Suppose a consumer is willing to pay $20 for one good X, $10 for a second, and $5 for a third, and the market price is $4. The consumer surplus is:

1) $16.
2) $6.
3) $1.
4) $23.

Answer 1

The consumer surplus in the given scenario is the sum of the differences between the consumer's willingness to pay for each unit of good X and the market price of $4. The total consumer surplus is $23, which is the sum of $16, $6, and $1 for the three units respectively.

Step-by-step explanation:

The subject of the question involves calculating the consumer surplus for a given scenario in which a consumer is willing to pay varying amounts for three units of a good, while the market price is constant. According to the details provided, the consumer is willing to pay $20 for the first unit of good X, $10 for the second, and $5 for the third, with a market price of $4 each. The consumer surplus is the difference between what the consumer is willing to pay and what they actually pay, summed over the number of units purchased.

For the first unit: Consumer surplus = $20 - $4 = $16
For the second unit: Consumer surplus = $10 - $4 = $6
For the third unit: Consumer surplus = $5 - $4 = $1

The total consumer surplus for all three units is the sum of the individual surpluses: Total consumer surplus = $16 + $6 + $1 = $23.

Therefore, the answer is: 4) $23.