Question

# Consider the market for grapefruit. At a market price of $4, what is total consumer surplus? Price ($/bag | of grapefruit) $10 0 20 40 60 80 Quantity of 100 grapefruits (bags) O $320 $160 O $120 O $80

Answer

$300

- Q: What is consumer surplus? A: Consumer surplus is the difference between the highest price that a consumer is willing to pay for a good or service and the actual price that they pay.
- Q: What is the highest price consumers are willing to pay for grapefruit if the market price is $4 per bag? A: Consumers are willing to pay $10 per bag for 100 grapefruits, $20 per bag for 80 grapefruits, and $40 per bag for 60 grapefruits. Since we are assuming a price of $4 per bag, consumers are willing to purchase the entire quantity of 100 grapefruits for a total price of $240.
- Q: What is the total consumer surplus? A: To calculate the total consumer surplus, we need to find the area of the triangle formed by the price ($4), the quantity sold (100 bags), and the demand curve. The demand curve is a straight line connecting the points ($10,0) and ($40,60). The height of the triangle is the difference between the market price and the highest price consumers are willing to pay, which is $6 ($10-$4). The base of the triangle is the quantity sold, which is 100 bags of grapefruit. Therefore, the area of the triangle is (0.5)(6)(100) = $300. This is the total consumer surplus.