Chapter 4, Problem 1P

To determine

To answer:

The amount of consumer surplus generated in each of the following situations.

1. 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 learned that the T-shirt has been discounted by 50%.
2. Alberto goes to the music store hoping to find a used copy of Nirvana’s Never mind for up to $30. The store has one copy of the record selling for $30, which he purchases.
3. 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.

Concept Introduction:

Consumer Surplus:

It is defined as the difference between consumer’s willingness to pay and how much does a consumer pay for the goods and services. It is the area above the price level and below the demand curve.

Producer Surplus:

It is defined as the difference between the amount a producer of a good receives and the minimum amount the producer is willing to accept for the good. It is the area below the price level and above the supply curve.