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Suppose a consumer's disposable income increases by 2000. How is their consumer surplus likely to be affected, assuming the price of the good remains unchanged and the good is a normal good?
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5. Consumer and Producer Surplus; Price Ceilings and Price Floors
Willingness to Pay and Consumer Surplus
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If last year the average price for an airline ticket was 450, and a consumer was willing to pay 600 for a ticket, what was the consumer surplus for this purchase?
A
1050
B
450
C
600
D
150
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Understand the concept of consumer surplus: it is the difference between what a consumer is willing to pay for a good and what they actually pay.
Identify the willingness to pay (WTP) from the problem, which is the maximum price the consumer is ready to pay. Here, WTP = 600.
Identify the actual price paid for the ticket, which is given as 450.
Calculate the consumer surplus using the formula: \(\text{Consumer Surplus} = \text{Willingness to Pay} - \text{Price Paid}\).
Substitute the values into the formula: \(\text{Consumer Surplus} = 600 - 450\) and simplify to find the surplus.
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