Economics: Principles & Policy
14th Edition
ISBN: 9781337912679
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning US
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Chapter 11, Problem 2TY
To determine
The
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Consumer surplus is calculated by taking the difference of the price consumers are willing to pay and the price actually paid.
When the price is $4, the consumer would buy only two bottles because the value the consumer would get from the first bottle is $7. This implies, the surplus is $3.
Similarly for the second bottle, the value the consumer would get from consuming it is $5 where the price the consumer will pay is $4, this implies the surplus is $1.
Lastly, for the third bottle the value is $3 and the price is $4 so the price surpasses the value, therefore the consumer will not consumer beyond two bottles.
The consumer surplus could be calculated as:
Consumer Surplus = (7-4) + (5-4)
= 3 + 1
= 2
This means the consumer will buy two bottles.
If the price falls to $2, the consumer would only buy three bottles because the value the consumer gets from the first bottle valued at $7 versus the $2 paid implies a consumer…
The figure shows the demand curve for pizza. A) What is the 4 point marginal benefit of pizza number 20? B) What is the maximum price that the consumer wants to pay for pizza number 20? C) If the price of a pizza is $6, what is the consumer surplus for the 20th pizza? d) If the price of a pizza is $10, what is the consumer surplus? e) If the price of a pizza is $6, what is the consumer surplus?
An important class of externalities to which attention has recently been directed is called
information externalities. The information produced by one individual or firm generates benefits
for others. The success of an oil well on one tract of land increases the likelihood of oil's being
found on an adjacent tract, and hence increases the value of that tract.
a) Can you think of other examples of information externalities?
b) What are the likely consequences of information externalities for the efficiency of resource
allocations?
c) Discuss the possibilities of private market solutions to these problems.
Chapter 11 Solutions
Economics: Principles & Policy
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