Suppose Ada's inverse demand for good x is given by: p = 10 - x. If the price increases from $3 to
$2, the change in consumer surplus is:
A)7.5.
B)2.5.
C)10.
D)5.

Question

Quizplus · Accepted Answer

Consumer surplus equals the area above the price line and below the demand curve. At p = $3, we have,

3 = 10 - x

x = 7

So, the quantity demanded at $3 is 7. Consumer surplus is the area above $3 and below the demand curve, which is a triangle with base 7 and height (10 - 3) = 7,

CS1 = (1/2) * 7 * 7 = $24.5

At p = $2, we have,

2 = 10 - x

x = 8

So, the quantity demanded at $2 is 8. Consumer surplus is now a triangle with base 8 and height (10 - 2) = 8,

CS2 = (1/2) * 8 * 8 = $32

The change in consumer surplus is CS2 - CS1 = $32 - $24.5 = $7.5. Therefore, the correct answer is (A).

Suppose Ada's Inverse Demand for Good X Is Given By