The price of green grapes increases from $1.90 to $2.30 per pound. When this happens, the amount of grapes sold drops from 500 pounds to 400 pounds. Assuming that the demand and supply of grapes is held constant, what is the value of the loss of consumer surplus that occurred?

Question

Quizplus · Accepted Answer

Firstly, let's calculate the initial consumer surplus before the price change. The initial equilibrium price was $1.90, and 500 pounds of grapes were sold. Therefore, the initial consumer surplus was:

Initial Consumer Surplus = 0.5 x ($2.30 - $1.90) x 500 = $100

After the price increase to $2.30, only 400 pounds of grapes were sold. The new consumer surplus can be calculated as follows:

New Consumer Surplus = 0.5 x ($2.30 - $2.30) x 400 = $0

Therefore, the loss in consumer surplus is:

Loss in Consumer Surplus = Initial Consumer Surplus - New Consumer Surplus = $100 - $0 = $100

But the question is asking for the value of the loss, so we need to negate this value. Therefore, the answer is:

Loss of Consumer Surplus = -$100

However, this amount is not listed in the answer choices. We need to find the closest value, which is $180 (answer D).

The Price of Green Grapes Increases from $1