Question

A cup of Starbucks Macchiato will cost you around $5, and a similar cup at McDonald is about $2.90.The exotic Indonesian Civet Coffee will cost around $20 per cup.

What is the most that you are willing to pay for a cup? Is it worth to pay more? Do you have any consumer surplus on this consumption?

Answer 1

For me, my demand for coffee is functional rather than "ecstatic". That is, I drink coffee just to get caffeinated.

So, I'd rather do a McDonald any day than do the Indonesian Civet Coffee. Of course, sometimes you want to meet with a high profile client, and the best place would be Starbucks due to it's very welcoming and conducive ambience.

So knowing that I'd make much more from a business deal when it pulls through, I wouldn't hestitate to have a meeting over a Starbucks or an Indonesian Vivet Coffee.

Consumer Surplus is the measure between the price of a commodity and what consumers are willing to pay.

If the choice was left to me, there wouldn't be any consumer surplus. But if I had to pay for an exotic Indonesian Civet Coffee when I didn't want to, then there'd be a huge Consumer Surplus.

Cheers!