Chapter 6, Problem 10RCC

To determine

To describe : What consumer surplus means?

Answer to Problem 10RCC

  

The consumer surplus is the shaded area represents the total amount of money saved by the consumer for the selling price X.

Explanation of Solution

Given information :

A demand function is $p\left(x\right)$ . The amount of a commodity currently available is $X$ and the current selling price is $P$ .

Concept used :

Demand function $p\left(x\right)$ is the price that a company has to change in order to sell $x$ units of commodity.

In economics the consumer surplus represents the amount of money saved by consumers in purchasing the commodity at price $P$ corresponding to an amount demand of $X$ .

Demand function $p\left(x\right)$ is the price that a company has to change in order to sell $x$ units of commodity.

In economics the consumer surplus represents the amount of money saved by consumers in purchasing the commodity at price $P$ corresponding to an amount demand of $X$ .

  Figure-1

From the Fig.-1 , we can say that when the available commodity is $x_i$ the corresponding price is $p_i=p\left(x_i\right)$ .

At that time some consumers are willing to pay that price.

But if the commodity can be bought at lower price than $p_i$ , that consumer eventually save some amount of money.

Now, by the problem, the amount is available at price $P$ .

  Figure-2

So, the consumer surplus is the shaded area of the graph at figure-2. That shaded area represents the total amount of money saved by the consumer for the selling price X.