Nick can purchase each milkshake for $2. For the first milkshake purchased Nick is willing to pay
$4, for the second milkshake $3, for the third milkshake $2 and for the fourth milkshake $1. What is the value of Nick's consumer surplus for the milkshakes he buys?
A) $9
B) $10
C) $2
D) $3

Question

Quizplus · Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. For the first milkshake, the surplus is $2 ($4 - $2), for the second it's $1 ($3 - $2), for the third it's $0 ($2 - $2), and for the fourth it's -$1 ($1 - $2). Adding these up gives a total consumer surplus of $2 + $1 + $0 - $1 = $2. However, Nick would not buy the fourth milkshake because its cost exceeds his willingness to pay, so the correct total consumer surplus is $2 + $1 + $0 = $3.

Nick Can Purchase Each Milkshake for $2