3. Determine the amount of consumer surplus generated in each of the following s

Question

3. Determine the amount of consumer surplus generated in each of the following situations. a. Leon goes to the clothing store to buy a new T-shirt, for which he is willing to pay up to $10. He picks out one he likes with a price tag of exactly $10. When he is paying for it, he learns that the T-shirt has been discounted by 50%. b. Alberto goes to the CD store hoping to find a used copy of Nirvana’s Greatest Hits for up to $10. The store has one selling for $10, which he purchases. c. After soccer practice, Stacey is willing to pay $2 for a bottle of mineral water. The 7- Eleven sells mineral water for $2.25 per bottle, so she declines to purchase it.

Explanation / Answer

Consumer surplus is the difference, consumers are willing to pay and the actual price.

So, in 1st case: Leon is willing to pay $ 10, whereas the actual price is $ 5, consumer surplus is 10 -5 = $ 5

In 2nd case Alberto is willing to pay $ 10 & he pays $ 10, consumer surplus = 10 -10 = $ 0

In 3rd case Stacey is willing to pay $2, which he ends up not buying, no transaction, hence no consumer surplus.

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