Question

The market price of a good is $10, and at this price 40 units of the good are produced and consumed. The demand curve for this good intersects the vertical axis at a price of $12 and has a constant slope. What is the (approximate) value of the consumer surplus in this market?

Answer 1

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. In this case, the consumer surplus is about $40.

Step-by-step explanation:

Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay. In this case, the demand curve intersects the vertical axis at a price of $12, indicating that some consumers would be willing to pay more than $10 for the good. To calculate the consumer surplus, we need to find the area above the market price ($10) and below the demand curve.

The formula for calculating the area of a triangle is 0.5 * base * height. In this case, the base of the triangle is 40 units (the quantity of the good) and the height is the difference between the price on the demand curve at 40 units and the market price of $10. Assuming a constant slope, we can find the height by subtracting the price at 40 units from the market price. So, the consumer surplus would be approximately 0.5 * 40 * (12 - 10) = $40.