Figure 7-5

-Refer to Figure 7-5.At the equilibrium price,consumer surplus is
A) $200.
B) $300.
C) $500.
D) $600.

Question

Figure 7-5
 
-Refer to Figure 7-5.At the equilibrium price,consumer surplus is
A) $200. 
B) $300. 
C) $500. 
D) $600.

Quizplus · Accepted Answer

Consumer surplus is the area below the demand curve and above the equilibrium price. At the equilibrium price of $20, the quantity demanded is 25. Therefore, consumer surplus is:

(1/2) x (25) x (40-20) = $250

However, we must subtract the rectangle between the equilibrium price and the maximum price consumers are willing to pay (which is $30 as shown by the demand curve). The dimensions of this rectangle are:

(30-20) x 25 = $250

So, the total consumer surplus at the equilibrium price is:

$250 - $50 (rectangle between equilibrium price and max. price willing to pay) = $200

Therefore, the correct choice is B ($300 is not an option and $200, $500, and $600 are incorrect).

Figure 7-5 -Refer to Figure 7-5.At the Equilibrium Price,consumer Surplus Is