If Sam is willing to pay $50 for one good X, $30 for a second, $20 for a third, $8 for a fourth, and the market price is $10, then Sam's consumer surplus is:
A) $10.
B) $40.
C) $70.
D) $100.

Question

Quizplus · Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay for a good (their maximum willingness to pay) and what they actually pay for the good. To calculate Sam's consumer surplus, we need to first figure out how much he is willing to pay for each good.

For the first good, Sam is willing to pay $50 but the market price is only $10, so his consumer surplus for the first good is $40.

For the second good, Sam is willing to pay $30 but the market price is only $10, so his consumer surplus for the second good is $20.

For the third good, Sam is willing to pay $20 but the market price is only $10, so his consumer surplus for the third good is $10.

For the fourth good, Sam is willing to pay $8 but the market price is still $10, so he does not purchase this good since he values it less than the market price.

Thus, Sam's total consumer surplus is $40 + $20 + $10 = $70.

If Sam Is Willing to Pay $50 for One Good