The following graph shows the demand curve for a group of students in the market

Question

The following graph shows the demand curve for a group of students in the market for a graphing calculator. Each student wants only one calculator. Assume that if an individual has a willingness to pay just equal to the market price, he or she will make the purchase. Area A (the red shaded area) represents total consumer surplus when the market price is $100, while Area B (the grey shaded area) represents which of the following? The change in total consumer surplus when the market price changes from $60 to $80. Total consumer surplus when the market price is $80. The change in total consumer surplus when the market price changes from $100 to $80. Total consumer surplus when the market price is $100. What does the market price of a graphing calculator need to be in order for Nicholas to gain a consumer surplus of $15 from buying a calculator?

Explanation / Answer

1. C The change in total surplus when the market price changes from $100 to $80.

As the market price decreased, the consumerr surplus increases and it becomes A + B. and since A is Surplus when Price is 100 , S0 B is the additional surplus agained by change of price to $80.

2. $25

As nicholas willingness to pay = 40

And Consumer surplus for Nicholas = 15

Consumer surplus for Nicholas = nicholas willingness to pay - Price

15 = 40 - Price

Price = 40 - 15 = $25

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