The blue line on the following graph shows Jake\'s demand for pizza. The price o
ID: 1188702 • Letter: T
Question
The blue line on the following graph shows Jake's demand for pizza. The price of pizza is $2.00 per slice, as shown by the horizontal grey line. PRICE (Dollars per slicel 4.00 3.50 3.00 2.50 2.00 Price 1.50 1.00 Demand 0.50 0.00 0 510 15 20 25 30 35 40 QUANTITY (Slices per month Help Clear All From the graph, you can tell that Jake's willingness to pay for his 15th slice of pizza each month is $2.25 Since he only has to pay $2.00 per slice, the consumer surplus he gains from the 15th slice of pizza is $0.25 Suppose the price of pizza were to fall to $1.50 per slice. At this lower price, Jake would receive a consumer surplus of $0.75from his 15th slice of pizza. At the lower price, Jake would alsoincrease amount of pizza he buys the The blue line on the following graph shows the market demand for pizza in a small economy. Using the purple triangle (diamond symbols), shade the area representing consumer surplus if the price of pizza is $2.00 per slice Then, using the green quadrilateral (triangle symbols), shade the area representing additional consumer surplus if the price falls to $1.50 per slice.Explanation / Answer
Consumer surplus is the difference between the maximum amount that a consumer is willing to pay for a good and the amount the consumer actually pays.
The demand curve show s the maximum amount a consumer is willing to pay for the good.
Thus, from the graph it is clear that the Jake’s willingness to pay for his 15th slice of Pizza each month is $2.25 and the market price of the Pizza $ 2.00 per slice. Thus the difference between willingness to pay and the market price is $0.25 which is the consumer surplus.
Suppose the price of the Pizza falls to $1.50 per slice. In this case the willing to pay for 15th slice of the Pizza is remains same at $2.25 and price at which the pizza is available is $1.50.
Thus the consumer surplus is = $2.25 -$1.50 = $0.75
Further, the law of demand states that as the price of any normal falls the quantity demand for the good increases. So as the price falls from $2.00 to $1.50, Jake would also increase the amount of pizza he buys
In the second graph, the purple triangle shows Jakes the total amount of consumer surplus for 200 (thousand slices per month) when the price is $2.00
Similarly, when the price falls to $1.50 the consumer surplus og Jake’s will also increase which is represented by the green areas above the price $1.50.
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