Kevin Williamson goes to a local coffee shop and orders a medium-sized latte. His willingness to pay for that latte is $6. The price of the latte is $2. The cost to the coffee shop to produce the latte is $1. How much economic surplus does Kevin gain when he purchases the latte?
A)$6
B)$4
C)$2
D)$1

Question

Quizplus · Accepted Answer

Kevin's consumer surplus is the difference between his willingness to pay and the price he actually pays, which is $6 - $2 = $4. 
The economic surplus (or total surplus) is the difference between the price and the cost of production, which is $2 - $1 = $1. 
Therefore, Kevin gains a net economic surplus of $4 - $1 = $3. However, the question asks for only the economic surplus gained by Kevin, which is $4 - $2 = $2. So the correct answer is B.

Kevin Williamson Goes to a Local Coffee Shop and Orders