-Refer to Exhibit 5-3 which shows the demand and supply of a college athlete.Suppose that NCAA rules limit the amount that the college can pay this athlete,such that their payment can not exceed the cost of attending the college (currently,$8,000).What is the consumers' surplus for the college (with respect to this one athlete)?
A) area 1
B) area 2
C) area 1 + 2 + 3
D) area 1 + 2

Question

-Refer to Exhibit 5-3 which shows the demand and supply of a college athlete.Suppose that NCAA rules limit the amount that the college can pay this athlete,such that their payment can not exceed the cost of attending the college (currently,$8,000).What is the consumers' surplus for the college (with respect to this one athlete)?
A) area 1 
B) area 2 
C) area 1 + 2 + 3 
D) area 1 + 2

Quizplus · Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. In this scenario, the college is willing to pay up to the value represented by the demand curve, but due to NCAA rules, they can only pay up to $8,000, which is less than the maximum they would be willing to pay. Therefore, the consumer surplus for the college includes areas 1 and 2, which are above the actual payment made but below the demand curve.

-Refer to Exhibit 5-3 Which Shows the Demand and Supply