Question

Calculate the consumer surplus in the market for gasoline if the market price is $3.50. Price ($ per gallon) Quantity of gasoline (millions of gallons) 0 40 80 120 160 200 240 280 320 360 400 440 480 520 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 Demand Price Consumer surplus

Answer 1

Answer:

The consumer surplus in the market for gasoline is $250 million

Explanation:

Consuemr Surplus

It is the difference between the consumer is willing to pay for the commodity and the actual market price.

The consumer surplus can be calculated as follow

Consumer Surplus = 0.50 x ( Maximum Price - Market Price ) x Quantity  

Where

Maximum Price = $6.00

Market Price = $3.50

Quantity = 200 million gallons

Placing values in the formula

Consumer Surplus = 0.50 x ( $6.00 - $3.50 ) x 200

Consumer Surplus = $250 million

Note: The graph in the question was missing, it is attached for your reference.