Question

Nick can purchase each milkshake for $2. For the first milkshake purchased Nick is willing to pay $4, for the second milkshake $3, for the third milkshake $2 and for the fourth milkshake $1. What is the value of Nick's consumer surplus for the milkshakes he buys?

Answer 1

Answer:

The value of Nick's consumer surplus for the milkshakes he buys is $3.

Step-by-step explanation:

Given : Nick can purchase each milkshake for $2. For the first milkshake purchased Nick is willing to pay $4, for the second milkshake $3, for the third milkshake $2 and for the fourth milkshake $1.

To find : What is the value of Nick's consumer surplus for the milkshakes he buys?

Solution :

Nick can purchase each milkshake for $2.

For 1st milkshake purchased Nick is willing to pay $4

Consume surplus $4-$2=$2

For 2nd milkshake purchased Nick is willing to pay $3

Consume surplus $3-$2=$1

For 3rd milkshake purchased Nick is willing to pay $2

Consume surplus $2-$2=$0

For 4th milkshake purchased Nick is willing to pay $1

Consume surplus $1-$2=$-1 cannot be consider.

We add together the surplus from the 1st, 2nd, 3rd, and 4th milkshake

i.e. $2+$1+$0=$3

Therefore, the value of Nick's consumer surplus for the milkshakes he buys is $3.