Question
Asked Oct 6, 2019
401 views
Consider the market for apartments. The market price of each apartment is $375,000, and each buyer demands no more than one apartment.
 
Suppose that Rajiv is the only consumer in the apartment market. His willingness to pay for an apartment is $600,000. Based on Rajiv's willingness to pay, the following graph shows his demand curve for apartments.
 
Shade the area representing Rajiv's consumer surplus using the green rectangle (triangle symbols).
 
Part 2
Now, suppose another buyer, Simone, enters the market for apartments, and her willingness to pay is $450,000.
 
Based on Simone's and Rajiv's respective willingness to pay, plot the market demand curve on the following graph using the blue points (circle symbol). Next, shade Rajiv's consumer surplus using the green rectangle (triangle symbols), and shade Simone's consumer surplus using the purple rectangle (diamond symbols).
Note: Plot your points as a step function in the order in which you would like them connected. Line segments will connect the points automatically.
 
True or False: Keeping his maximum willingness to pay for an apartment in mind, Yakov will buy the apartment because it would be worth more to him than its market price of $375,000.  ( see capture 2 for the graph )
 
 
 
Shade the area
representing Rajiv's consumer surplus using the green rectangle (triangle symbols).
Rajiv's Demand
600
525
Rajiv's Consumer Surplus
450
Market Price
375
300
225
150
75
0
0
4
QUANTITY (Apartments)
PRICE (Thousands of dollars)
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Shade the area representing Rajiv's consumer surplus using the green rectangle (triangle symbols). Rajiv's Demand 600 525 Rajiv's Consumer Surplus 450 Market Price 375 300 225 150 75 0 0 4 QUANTITY (Apartments) PRICE (Thousands of dollars)

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800
525
Demand Curve
450
Market Price
375
Rajiv's Consumer Surplus
300
Simone's Consumer Surplus
225
150
75
0
1
0
2
3
4
QUANTITY (Apartments)
PRICE (Thousands of dollars)
help_outline

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800 525 Demand Curve 450 Market Price 375 Rajiv's Consumer Surplus 300 Simone's Consumer Surplus 225 150 75 0 1 0 2 3 4 QUANTITY (Apartments) PRICE (Thousands of dollars)

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Expert Answer

Step 1

The difference between the amount that the consumer is willing to pay and the amount that he actually pays for the good is called consumer surplus.

Step 2

Here, the market price of each apartment is $375,000. And Rajiv’s willingness to pay is $600,000. Thus, difference between the two amounts gives the consumer surplus, as shown in the figure (1) below,

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Shade the area representing Rajiv's consumer surplus using the green rectangle (triangle symbols). Rajiv's Demand 600 525 Rajiv's Consumer Surplus Rajiv's consumer surplus 450 Market Price 375 300 225 150 75 QUANTITY (Apartments) FIGURE 1 PRICE (Thousands of dolars)

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Step 3

Demand curve, when another consumer Simone enters the market is drawn in the graph shown i...

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600 Demand Curve 525 Demand Curve 450 Market Price 375 Rajv's Consumer Surplus 300 Simone's Consumer Surplus 225 150 75 0 3 QUANTITY (Apartments) FIGURE 2 PRICE (Thousands of dollars)

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Consumer demand theory

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