Assume that there are four consumers A, B, C, and D, and the prices that each of them is willing to pay for a glass of lemonade is, respectively, $1.50, $1.20, $1.00, and $0.90. If the actual price of lemonade is $1.00 per glass, then consumer surplus in this market will be $0.70.

Question

Quizplus · Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay (their reservation price) and what they actually pay in the market. In this case, the consumers' reservation prices are as follows:
A: $1.50
B: $1.20
C: $1.00
D: $0.90

The actual price of lemonade is $1.00, so consumers A and B both experience consumer surplus:
A: $1.50 - $1.00 = $0.50
B: $1.20 - $1.00 = $0.20

The total consumer surplus is the sum of these two amounts, which is $0.70. Therefore, the statement is true.

Assume That There Are Four Consumers A, B, C, and D