Consider a market with $Q ^ { d } = 240 - 4 P + 2 I$ and $Q ^ { s } = 6 P$ . Suppose that initially income is I = 60, and that income then increases to I = 80. What is the increase in consumer surplus from this increase in income?
A) 1,300
B) 1,368
C) 1,421
D) 1,472

Question

Quizplus · Accepted Answer

Initially, with I = 60, the demand equation is $Q^d = 240 - 4P + 120$. Setting $Q^d = Q^s$, we solve for equilibrium price and quantity. After the income increase to I = 80, the demand equation becomes $Q^d = 240 - 4P + 160$. Solving again for the new equilibrium, we find the change in consumer surplus by calculating the area between the demand curves and the price axis before and after the income change. The increase in consumer surplus is 1,368.

Consider a Market With Qd=240−4P+2IQ ^ { d } = 240 - 4 P + 2 IQd=240−4P+2I

Consider a Market With $Q ^ { d } = 240 - 4 P + 2 I$