Exhibit 6-17
-Consider Exhibit 6-17 which represents the market demand for DVDs. If the price of DVDs increases from $20 to $25, what happens to consumer's surplus?

Question

Exhibit 6-17 
-Consider Exhibit 6-17 which represents the market demand for DVDs. If the price of DVDs increases from $20 to $25, what happens to consumer's surplus?

Quizplus · Accepted Answer

When the price of DVDs increases from $20 to $25, the quantity demanded decreases from 700 to 500. The new consumer surplus equals the area above the price line and below the new demand curve, which is a triangle with a base of 500 DVDs and a height of $7.50 ($25 - $17.50). The original consumer surplus was a triangle with a base of 700 DVDs and a height of $5 ($25 - $20). Therefore, the change in consumer surplus is equal to ($5 x 700) - ($7.50 x 500) = $3,500 - $3,750 = -$250. This means that consumer surplus decreases by $17.50 per DVD ($250 ÷ 500 DVDs).

Exhibit 6-17 -Consider Exhibit 6-17 Which Represents the Market Demand for DVDs