Exhibit 16-5
-Exhibit 16-5 represents the market for leaf tobacco. In the absence of any government intervention, how much consumer surplus would there be?

Question

Exhibit 16-5 
-Exhibit 16-5 represents the market for leaf tobacco. In the absence of any government intervention, how much consumer surplus would there be?

Quizplus · Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price they pay. In this case, the demand curve intersects with the price axis at $6 and the equilibrium price is $3. Therefore, consumer surplus is:
(1/2) x (6-3) x 40 = $60 per person
Multiplying this per-person consumer surplus by the total number of buyers (40) gives us:
$60 x 40 = $2,400
However, we need to adjust for the fact that the two consumers who are willing to pay $6 are only willing to buy one unit each at that price. Therefore, we subtract $3 (the difference between the $6 they're willing to pay and the $3 they actually pay) from our consumer surplus per person calculation for these two individuals. This gives us:
[(1/2) x (6-3) x 38] + [(1/2) x (6-3) x 2) - (2 x 3) = $2,000
So the correct answer is D: $2,000.

Exhibit 16-5 -Exhibit 16-5 Represents the Market for Leaf Tobacco. in the Tobacco