Multiple Choice
When people consider purchasing a good, they typically compare:
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
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Blake eats two bags of potato chips. If his willingness to pay for the first bag is \$3 and for the second bag is \$2, and the market price per bag is \$2, what is Blake's total consumer surplus from buying two bags?
A
\$2
B
\$0
C
\$3
D
\$1
Verified step by step guidance1
Identify Blake's willingness to pay (WTP) for each bag: \$3 for the first bag and \$2 for the second bag.
Note the market price per bag, which is \$2.
Calculate the consumer surplus for each bag by subtracting the market price from the willingness to pay: for the first bag, consumer surplus = \$3 - \$2; for the second bag, consumer surplus = \$2 - \$2.
Add the consumer surpluses from both bags to find the total consumer surplus: total consumer surplus = (WTP_1 - Price) + (WTP_2 - Price).
Interpret the result as the total benefit Blake receives from purchasing the two bags at the market price, beyond what he pays.
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