Question

Suppose the market price is $5. The buyer who buys the first unit of output has a willingness-to-buy equal to $10; the buyer who buys the second unit of output has a willingness-to-buy equal to $9; and the buyer who buys the third unit of output has a willingness-to-buy equal to $8. Total consumer surplus is: $12. $27. $10. $5.

Answer 1

Answer:

Total consumer surplus is $12

Explanation:

Consumer surplus refers to the benefit derived by the consumer from the amount he is willing to pay as against market price. For example, Glee is willing to pay $10 for a product. The market price of the product is $5. His consumer surplus will be $5 (benefit).

Here, market price is $5.

Buyer is willing to spend $10 for first unit. Consumer surplus is $5 (10 - 5)

Buyer is willing to spend $9 for second unit. Consumer surplus is $4 (9 - 5)

Buyer is willing to spend $8 for third unit. Consumer surplus is $3 (8 - 5)

Total consumer surplus is $12 (5 + 4 + 3)