Question

Suppose Pedro buys a mountain bike for $200, which he was willing to pay up to $300 for. Pedro's consumer surplus in this transaction equals _____.

a. $200
b. $500
c. $100
d. $300

Answer 1

Pedro's consumer surplus is $100, calculated by subtracting the price he paid ($200) from the amount he was willing to pay ($300).

Step-by-step explanation:

Pedro's consumer surplus in this transaction equals $100.

Consumer surplus is the difference between what a consumer is willing to pay for a good and what they actually pay. In the given scenario, Pedro was willing to pay up to $300 for a mountain bike but only paid $200. Therefore, the consumer surplus can be calculated as the difference between these two values:

The consumer surplus in this transaction can be calculated by subtracting the amount Pedro actually paid for the mountain bike ($200) from the maximum amount he was willing to pay ($300). This gives us a consumer surplus of $300 - $200 = $100.