A consumer's demand for CDs can be represented by a line with slope -b and intercept a. If the current price of CDs is $P, then the ratio of consumer surplus to total expenditures on CDs equals

Question

Quizplus · Accepted Answer

The consumer surplus is the area of the triangle above the price and below the demand curve, which is (1/2)(a - P)(a/b). The total expenditure is P(a - bP). The ratio is (1/2)(a - P)(a/b) divided by P(a - bP), simplifying to (a/b - P)/(2P).

A Consumer's Demand for CDs Can Be Represented by a Line