Table 7-5
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.

-Refer to Table 7-5.If the market price of an orange increases from $0.70 to $1.40,then consumer surplus
A) increases by $2.50.
B) decreases by $0.80.
C) decreases by $2.60.
D) decreases by $3.40.

Question

Table 7-5
For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Alex, Barb, and Carlos are the only three buyers of oranges, and only three oranges can be supplied per day.
 
-Refer to Table 7-5.If the market price of an orange increases from $0.70 to $1.40,then consumer surplus
A) increases by $2.50. 
B) decreases by $0.80. 
C) decreases by $2.60. 
D) decreases by $3.40.

Quizplus · Accepted Answer

When the market price of an orange increases from $0.70 to $1.40, only Carlos will continue to buy oranges at the new price because he has the highest willingness to pay. Thus, Alex and Barb will not buy oranges, which means their consumer surplus will be 0 at the new price. Carlos's consumer surplus is the difference between his willingness to pay and the market price, which is $2.60 at the original price ($3.00 - $0.40). At the new price, Carlos's consumer surplus decreases to $1.60 ($3.00 - $1.40), which means a decrease of $1.00. Therefore, the total consumer surplus decreases by $1.00 + $0.80 + $0 = $1.80.

Table 7-5 For Each of Three Potential Buyers of Oranges, the Table