Question

Determine the amount of consumer surplus [CS] generated in each of the following situations: (show your work).

a. Sienna is willing to pay up to $30 for a new T-shirt. He picks out one he likes with a price tag of exactly $18.

Answer 1

Sienna's consumer surplus is calculated by subtracting the price she paid ($18) for the T-shirt from the amount she was willing to pay ($30), resulting in a consumer surplus of $12.

Step-by-step explanation:

To determine the amount of consumer surplus (CS) generated when Sienna is willing to pay up to $30 for a new T-shirt but buys it for $18, we subtract the price she paid from her maximum willingness to pay. Therefore, Sienna's consumer surplus is:

Consumer Surplus = Willingness to Pay - Price Paid

Consumer Surplus = $30 - $18

Consumer Surplus = $12

This represents the additional value, or utility, that Sienna receives from purchasing the T-shirt at a lower price than the maximum amount she was willing to spend.