QUESTION 4 The following table shows the maximum that each person is willing to

Question

QUESTION 4 The following table shows the maximum that each person is willing to pay for Good Z. Buyers Willingness to Pay (S) Cassie Jamie John Jeremy Sarah If the price of Good Z is $4.50, then Jeremy's consumer surplus is $ numerical answer. For instance, if you think the answer is $5.55, simply enter 5.55.) 8.00 7.50 5.30 3.90 2.50 (Please enter your answer in the box provided. Enter only your QUESTION 5 The following table shows the maximum that each person is willing to pay for Good Z. Buyers Willingness to Pay (S) Cassie Jamie John Jeremy Sarah If the price of Good Z is $4.50, the total consumer surplus of those (among these five people) who will buy Good Z is $ your answer in the box provided. Enter only your numerical answer. For instance, if you think the answer is $5.55, simply enter 5.55.) 8.00 7.50 5.30 3.90 2.50 (Please enter

Explanation / Answer

Answer:

4. If price of good Z is $4.50, then Jeremy’s consumer surplus is - $0.60

Consumer surplus = buyers willingness to pay – actual price of the commodity

Consumer surplus = $3.90 – $4.50

Jeremy’s consumer surplus = - 0.60

As Jeremy’s willingness to pay is less than the actual price so her consumer surplus is negative (-0.60)

5. If the price of Good Z is $4.50, the total consumer surplus of those who will buy good Z is $7.3    

The consumers who will buy the goods are Cassie, Jamie and John because their willingness to pay is higher than the actual price

Cassie’s consumer surplus is = 8.00 – 4.50 = 3.50

Jamie’s consumer surplus is = 7.50 – 4.50 = 3.00

John’s surplus is = 5.30 – 4.50 = 0.8

The total surplus is = 3.50 + 3.00 + 0.8 = $7.3

6. The total willingness to pay would be highest if you chose:

Cassie, Jamie and John

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