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
