Question

If Pedro is willing to pay a maximum of $21,000 for a new car and finds one for $18,000, what will his consumer surplus be?

Answer 1

Pedro's consumer surplus is $3,000, calculated as the difference between the maximum price he was willing to pay ($21,000) and the actual price of the car ($18,000).

Step-by-step explanation:

If Pedro is willing to pay a maximum of $21,000 for a new car but finds one for $18,000, his consumer surplus would be the difference between the maximum price he's willing to pay and the price he actually pays. In this case, Pedro's consumer surplus is $3,000 ($21,000 - $18,000).

A consumer surplus occurs when the consumer is willing to pay more for a product than the market price. Therefore, Pedro experiences a gain because he was prepared to spend more on the car than what it cost him, leading to a positive consumer experience.