Fred's demand schedule for movie DVDs is as follows: At $60, he would buy 1; at $50, he would buy two; at $30, he would buy 3; and at $20, he would buy 4.If the price of movie DVDs equals $40, the consumer surplus Fred receives from purchasing movie DVDs would be:
A)$20.
B)$30.
C)$40.
D)$110.
E)$180.

Question

Quizplus · Accepted Answer

To calculate the consumer surplus, we need to find the highest price that Fred is willing to pay (also known as the reservation price) and subtract the actual price from it.

At $40, Fred is willing to buy 2 DVDs (between the price points of $50 and $30). So his reservation price is $50.

Consumer surplus = Reservation price - Actual price
Consumer surplus = $50 - $40
Consumer surplus = $10 per DVD

Since Fred is buying two DVDs, the total consumer surplus he receives is:

Total consumer surplus = $10 per DVD * 2 DVDs
Total consumer surplus = $20

Therefore, the best choice is B: $20.

Fred's Demand Schedule for Movie DVDs Is as Follows: at $60