Calculate the consumer surplus generated:
1.Sarah is willing to pay up to $10 for a shirt. He picks up one he likes for $8.
2.Josh goes to the store to to find a used vinyl for a max of $10.the store has one copy for $10 which he buys
3.After basketball Sarah is willing to pay $2 for a water bottle . The 7/11 sells it for $2.25, so she declines to purchase it
My answers :
1. $2
2. $0
3. $0.25
To calculate the consumer surplus, you need to subtract the actual price paid from the maximum price the consumer is willing to pay.
1. For Sarah's shirt:
Consumer Surplus = Maximum Price - Actual Price
= $10 - $8
= $2
So, the consumer surplus generated for Sarah's shirt is $2.
2. For Josh's vinyl:
Consumer Surplus = Maximum Price - Actual Price
= $10 - $10
= $0
In this case, Josh paid the exact maximum price he was willing to pay, so there is no consumer surplus generated.
3. For Sarah's water bottle:
Consumer Surplus = Maximum Price - Actual Price
= $2 - $2.25
= -$0.25
In this case, the actual price is higher than Sarah's willingness to pay. Therefore, there is no consumer surplus. The negative value indicates that Sarah did not receive any surplus and potentially experienced some dissatisfaction.
So, your answers are correct:
1. $2
2. $0
3. $0.25 (although, technically it should be -$0.25)
Remember, consumer surplus represents the economic benefit that consumers gain when they are able to purchase a good or service for a price lower than their willingness to pay.