-Refer to Figure 4 -1. If the market price is US$2.50, what is Magi's consumer surplus?
A) US$7.50
B) US$9.00
C) US$1.50
D) US$0

Question

-Refer to Figure 4 -1. If the market price is US$2.50, what is Magi's consumer surplus?
A) US$7.50 
B) US$9.00 
C) US$1.50 
D) US$0

Quizplus · Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay for a good and what the consumer actually pays. In this case, Magi is willing to pay up to US$4.00 (as seen from the demand curve at a price of US$2.50, the quantity demanded is at the point where Magi's maximum willingness to pay is US$4.00). Since the market price is US$2.50, the consumer surplus is US$4.00 - US$2.50 = US$1.50.