15. Suppose the linear demand curve fir shirts slopes downward and that consumer

Question

15. Suppose the linear demand curve fir shirts slopes downward and that consumers buy 500 shirts per year when the price is $30 and 1,000 shirts per year when the price $25.
a. Compared to the prices if $30 and $25, what can you say about the marginal valuation that consumers place on the 300th shirt , the 700th shirt and the 1200th shirt they might buy each year?
b. With diminishing marginal utility, are consumers deriving any consumer surplus if the price is $25 per shirt? Explain
c. Use a market demand curve to illustrate the change in consumer surplus if the price drops from $30 to $25.

Explanation / Answer

the 300th shirt is worth more than $30, the 700th is worth between $25 and $30 and the 1200th shirt is worth less than $25 (b)Yes, we know there are people who would be willing to pay more than $25 for a shirt so there is consumer surplus. (c)there are 500 people who would be willing to pay $30 who now pay only $25 so the increase is 5*500=$2500.

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