Question

Alex is willing to pay $10, and Bella is willing to pay $8, for 1 pound of ribeye steak. When the price of ribeye steak increases from $9 to $11, a. Alex experiences a decrease in consumer surplus, but Bella does not. b. neither Bella nor Alex experiences a decrease in consumer surplus. c. both Bella and Alex experience a decrease in consumer surplus. d. Bella experiences a decrease in consumer surplus, but Alex does not. 5

Answer 1

Answer:

Option (c) is correct.

Explanation:

Given that,

For 1 pound of ribeye steak,

Alex is willing to pay = $10

Bella is willing to pay = $8

Consumer surplus refers to the benefit that is obtained by the consumer. It is the difference between consumer's willingness to pay for the good and the actual amount paid for the product.

When the price of ribeye steak increases from $9 to $11,

Consumer surplus at price = $9,

For Alex = Willingness to pay - Actual Amount paid for the product

              = $10 - $9

              = $1

For Bella = $8 - $9

               = -$1

Consumer surplus at price = $11,

For Alex = Willingness to pay - Actual Amount paid for the product

              = $10 - $11

              = -$1

For Bella = $8 - $11

               = -$3

Therefore, we can conclude that the consumer surplus of both Bella and Alex decreases, due to an increase in the price of the product.