Question

Assume equilibrium is $7. If three consumers purchase on unit of their product at the equilibrium price, but would be willing to pay $8, $12, and $15. What is total consumer surplus?

Answer 1

The total consumer surplus is calculated as the sum of the differences between what each consumer was willing to pay and the equilibrium price. With three consumers willing to pay $8, $12, and $15, and an equilibrium price of $7, the total consumer surplus is $14.

Step-by-step explanation:

The total consumer surplus is the sum of the differences between what each consumer would have been willing to pay and the equilibrium price they actually paid. If three consumers purchase a unit of a product at the equilibrium price of $7 and they were willing to pay $8, $12, and $15 respectively, we calculate the total consumer surplus by subtracting the equilibrium price from each willing-to-pay price and then summing the differences.

• Consumer 1: $8 (willing to pay) - $7 (equilibrium price) = $1 surplus
• Consumer 2: $12 - $7 = $5 surplus
• Consumer 3: $15 - $7 = $8 surplus

Adding up all the surpluses, we get: $1 + $5 + $8 = $14. Thus, the total consumer surplus is $14.