Problem Set 6

Paul goes to Sportsmart to buy a new tennis racquet. He is willing to pay​ $200 for a new​ racquet, but buys one on sale for​ $125. Paul's consumer surplus from the purchase is

$75

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for ​$14​, a second lawn for ​$15​, and a third lawn for ​$22. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay ​$31 to have her lawn​ mowed, Mr. Wilson would be willing to pay ​$30​, and Ms. Smith would be willing to pay ​$22. If Tim offers to mow lawns for ​$22 ​each, what will be his producer​ surplus? ​$_____ ​(Enter a numeric response using an​ integer.) Considering Mrs.​ Jones, Mr.​ Wilson, and Ms. Smith​ together, what will be their consumer​ surplus? ​$_____

15, 17

Tim mows neighborhood lawns for extra money. Suppose that he would be willing to mow one lawn for ​$10​, a second lawn for ​$17​, and a third lawn for ​$24. Also suppose that three neighbors are interested in having their lawns mowed. Mrs. Jones would be willing to pay ​$35 to have her lawn​ mowed, Mr. Wilson would be willing to pay ​$29​, and Ms. Smith would be willing to pay ​$24. If Tim offers to mow lawns for ​$24 ​each, what will be his producer​ surplus? ​$________ Considering Mrs.​ Jones, Mr.​ Wilson, and Ms. Smith​ together, what will be their consumer​ surplus? ​$_______-

21, 16

On a shopping​ trip, Melanie decided to buy a light blue coat made from woven fabric. A tag on the coat stated that the price was​ $79.95. When she brought the coat to the​ store's sales​ clerk, Melanie was told that the coat was on​ sale, and she would pay 20 percent less than the price on the tag. After the discount was​ applied, Melanie paid​ $63.96, $15.99 less than the original price . The value of​ Melanie's consumer surplus from this purchase is

At least 15.99 since this is the difference between the price melanie is willing to pay for the coat and the actual price she pays, but she could've been willing to pay more than $79.95

As the price of a good​ rises, consumer surplus __________, and as the price of a good​ falls, consumer surplus ____________ .

Decreases; increases

Each point on a​ ________ curve shows the willingness of consumers to purchase a product at different prices.

Demand

The Waco​ Kid's Cowboy Hats Marginal Cost ​(dollars) 1st hat ​$24 2nd hat 30 3rd hat 38 4th hat 46 The table to the right lists the marginal cost of cowboy hats by The Waco​ Kid, a firm that specializes in producing western wear. If the price of cowboy hats decreases from​ $38 to​ $30

Producer surplus will fall from $22 to $6

Consumer surplus is

The difference between the highest price a consumer is willing to pay and the price the consumer actually pays

A student​ argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is​ largest." This statement is false because

The level of output where the difference between the marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus

A student makes the following​ argument: ​"When a market is in​ equilibrium, there is no consumer surplus LOADING.... We know this because in​ equilibrium, the market price is equal to the price consumers are willing to pay for the​ good." Briefly explain whether you agree with the​ student's argument.

The student is incorrect because the price consumers are willing to pay and the market price are only equal for the last unit consumed

Consumer surplus is larger when...

There is a greater area between the demand curve and the market equilibrium price

Consumer Willingness to Pay Tom ​$40 Dick ​$30 Harriet ​$25 The table above lists the highest prices three​ consumers, Tom,​ Dick, and​ Harriet, are willing to pay for a shortminussleeved polo shirt. If the price of one of the shirts is​ $28 dollars

Tom will receive $12 of consumer surplus from buying one shirt