Microeconomics: Principles & Policy
14th Edition
ISBN: 9781337794992
Author: William J. Baumol, Alan S. Blinder, John L. Solow
Publisher: Cengage Learning
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In the discussion of Figure 3, there is a set of numbers indicating how much different buyers would be willing to pay for a book. Construct a table for these buyers, like the first three columns in Table 1 Indicating their consumer surpluses.
There are six potential consumers of computer games, each willing to buy only one game. Consumer 1 is willing to pay $40 for a computer game, consumer 2 is willing to pay $35, consumer 3 is willing to pay $30, consumer 4 is willing to pay $25, consumer 5 is willing to pay $20, and consumer 6 is willing to pay $15.
Suppose the market price is $29. What is the total consumer surplus?
The market price decreases to $19. What is the total consumer surplus now?
When the price falls from $29 to $19, how much does each consumer’s individual
consumer surplus change? How does total consumer surplus change?
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…
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- The rent on an apartment in a particular building near campus is $1,200 per month. If Min would be willing to pay up to $1,400, Genevieve would be willing to pay up to $1,500, Fraser would be willing to pay up to $1,600, and Kayden would pay no more than $1,000, what is the consumer surplus for this group of students who would like to live in the building? Explain how you calculated this consumer surplusarrow_forwardRefer to Figure 9-2. Without trade, consumer surplus amounts to Group of answer choices $9,720. $19,440. $23,280. $20,280.arrow_forwardBoth a home buyer (A) and seller (B) of a house agree on a price of 2.5 million dollars. A values the house at 3 million dollars and B values the house at 2 million dollars. Before the date of delivery of the keys, C offers to buy this house from B for 3 million dollars because C values the house at 4 million. (a) Assuming transaction costs are zero (0), fully explain what actions A, B, and C will take and how social surplus will be distributed among them if A has the remedy of expectation damages against B. (b) Assuming transaction costs are zero (0), fully explain what actions A, B, and C will take and how social surplus will be distributed among them if A has the remedy of specific performance against B. (c) Assuming transaction costs are zero (0), fully explain what actions A, B, and C will take and how social surplus will be distributed among them if A has no remedy against B. (d) How high can transaction costs be before it matters which remedy A has?arrow_forward
- As in the previous question, use the numbers and figure three to determine the producer surplus and complete your table to correspond to the remaining columns of Table 1. The table that needs to be completed is: Types of Consumers Acceptable Max Price Consumers Surplus Actual Price A $70 $30 $40 B $60 $20 $40 C $50 $10 $40 E $40 $0 $40 F $30 -$10 $40 G $20 -$20 $40 Producer Cumulative Total Surplus Producers Surplus Acceptable Minimum Price a $20 b $20 c $20 e $20 f $20 g $20arrow_forwardConsider 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…arrow_forwardReferring to the graph above, if the price of the property increases (all other things being equal): • a) None of these statements. • b) the consumer's surplus would increase. • c) the total surplus would increase. • d) the consumer's surplus would decrease.arrow_forward
- In the market for a particular pair of shoes, Allan is willing to pay 63 for a pair, while Jane is willing to pay 80 for a pair. The actual price that each has to pay for a pair of these shoes is 50. What is the total amount of the two girls' combined consumer surpluses?arrow_forwardRefer to Table 6.5. If the six people listed in the table are the only consumers in the market and the equilibrium price is $11 (not the $8 shown), how much consumer surplus will the market generate?arrow_forwardDominic is willing to pay $12 for a single pizza; Stephany is willing to pay $7; and Tyler is willing to pay $5. There are no other potential consumers for pizza. Cheezbuzz, the supplier of pizza, has a cost of $1 for the first pizza, $2 for the second pizza, $3 for the third, $4 for the fourth, and so on. In a closed market equilibrium, the social surplus will be $arrow_forward
- Think about all the goods and services that you consume. Which product gives you the highest consumer surplus? Discuss in detail using the equation of consumer surplusarrow_forwardAssume the market price for lemon grass is $4.00 per pound, but most buyers are willing to pay more than the market price. At the market price of $4.00, the quantity of lemon grass demanded is 1,500 pounds per month, and quantity demanded does not reach zero until the price reaches $30.00 per pound. Construct a graph showing this data, calculate the total consumer surplus in the market for lemon grass, and show the consumer surplus on the graph.arrow_forwardSuppose a consumer is willing to buy a book for $50, but the actual price of the book in the market is $30. What is the consumer surplus in this case? If the price of the book increases to $40, what would be the new consumer surplus?arrow_forward
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