2. Individual demand and consumer surplus Consider the market for loft houses. The market price of each loft house is $280,000, and each consumer demands no more than one loft house. Suppose that Edison is the only consumer in the loft house market. Their willingness to pay for a loft house is $490,000. Based on Edison's willingne to pay, the following graph shows his demand curve for loft houses. Shade the area representing Edison's consumer surplus using the green rectangle (triangle symbols). PRICE (Thousands of dollars) 560 490 PRICE (Thousands of dollars) 420 350 280 210 140 70 0 Now, suppose another buyer, Hilary, enters the market for loft houses, and her willingness to pay is $350,000. 560 Based on Hilary's and Edison's respective willingness to pay, plot the market demand curve on the following graph using the blue points (circle symbol). Next, shade Edison's consumer surplus using the green rectangle (triangle symbols), and shade Hilary's consumer surplus using the purple rectangle (diamond symbols). Note: Plot your points as a step function in the order in which you would like them connected. Line segments will connect the points automatically. 490 420 350 280 210 Edison's Demand 140 Market Price 70 Edison's Consumer Surplus Market Price Demand Curve Edison's Consumer Surplus Hilary's Consumer Surplus
2. Individual demand and consumer surplus Consider the market for loft houses. The market price of each loft house is $280,000, and each consumer demands no more than one loft house. Suppose that Edison is the only consumer in the loft house market. Their willingness to pay for a loft house is $490,000. Based on Edison's willingne to pay, the following graph shows his demand curve for loft houses. Shade the area representing Edison's consumer surplus using the green rectangle (triangle symbols). PRICE (Thousands of dollars) 560 490 PRICE (Thousands of dollars) 420 350 280 210 140 70 0 Now, suppose another buyer, Hilary, enters the market for loft houses, and her willingness to pay is $350,000. 560 Based on Hilary's and Edison's respective willingness to pay, plot the market demand curve on the following graph using the blue points (circle symbol). Next, shade Edison's consumer surplus using the green rectangle (triangle symbols), and shade Hilary's consumer surplus using the purple rectangle (diamond symbols). Note: Plot your points as a step function in the order in which you would like them connected. Line segments will connect the points automatically. 490 420 350 280 210 Edison's Demand 140 Market Price 70 Edison's Consumer Surplus Market Price Demand Curve Edison's Consumer Surplus Hilary's Consumer Surplus
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2. Individual demand and consumer surplus
Consider the market for loft houses. The market price of each loft house is $280,000, and each consumer demands no more than one loft house.
Suppose that Edison is the only consumer in the loft house market. Their willingness to pay for a loft house is $490,000. Based on Edison's willingness
to pay, the following graph shows his demand curve for loft houses.
Shade the area representing Edison's consumer surplus using the green rectangle (triangle symbols).
PRICE (Thousands of dollars)
560
490
420
PRICE (Thousands of dollars)
350
280
210
140
70
0
Now, suppose another buyer, Hilary, enters the market for loft houses, and her willingness to pay is $350,000.
560
Based on Hilary's and Edison's respective willingness to pay, plot the market demand curve on the following graph using the blue points (circle
symbol). Next, shade Edison's consumer surplus using the green rectangle (triangle symbols), and shade Hilary's consumer surplus using the purple
rectangle (diamond symbols).
490
Note: Plot your points as a step function in the order in which you would like them connected. Line segments will connect the points automatically.
420
350
280
210
140
70
Edison's Demand
O
0
1
Market Price
2
QUANTITY (
3
Edison's Consumer Surplus
Market Price
4
5
(?)
Demand Curve
Edison's Consumer Surplus
Hilary's Consumer Surplus
?
Transcribed Image Text:Suppose Kevin is willing to pay a total of $210,000 for a loft house.
True or False: Keeping his maximum willingness to pay for a loft house in mind, Kevin will not buy the loft house because it would be worth less to
him than its market price of $280,000.
True
False
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