Chapter 4, Problem 3P

To determine

(a) Consumer surplus when the market price is $29.
(b) Consumer surplus when the market price decreases to $19.
(c) Consumer surplus when the market price falls from $29 to $19.

Concept Introduction

Consumer surplus: The difference in amounts that the consumers are ready to pay for a particular good and service and the total amount they actually pay for that good is known as consumer surplus. The amount saved as surplus can be used to buy some other good.

Market Price: The price at which a product is offered in the market is called its market price. It is the current price at which a good or service can be bought or sold.

Explanation of Solution

(a) Consumer surplus when the market price is $29.

• The formula to calculate the consumer surplus is:

• Following table shows consumer surplus when the market price of a computer game is $29.

Potential Consumers	Willingness to pay($)	Price paid($)	Individual consumer surplus($)
Consumer 1	40	29	11
Consumer 2	35	29	6
Consumer 3	30	29	1
Consumer 4	25	-	-
Consumer 5	20	-	-
Consumer 6	15	-	-
Total Consumer Surplus	18

• The above table shows that consumer 1, consumer 2, consumer 3 will purchase the game as the market price is less than their willingness to pay producing total surplus of $18.

• As the market price is greater than what consumer 4, consumer 5, and consumer 6 are willing to pay, so they are not willing to purchase.

Conclusion:

Thus, the total consumer surplus is $18.

(b) Consumer surplus when the market price decreases to $19.

• The formula to calculate the consumer surplus is:

• Following table shows consumer surplus when the market price of the computer game decreases to $19.

Potential Consumers	Willingness to pay($)	Price paid($)	Individual consumer surplus($)
Consumer 1	40	19	21
Consumer 2	35	19	16
Consumer 3	30	19	11
Consumer 4	25	19	6
Consumer 5	20	19	1
Consumer 6	15	-	-
Total Consumer Surplus	55

• The above table shows all the other consumers, except consumer 6 will purchase the computer game producing a total consumer surplus of $55.

Conclusion;

Thus, the total consumer surplus is $55.

(c) Consumer surplus when the market price falls from $29 to $19.

• There is a change in the consumer surplus of each consumer when the market price falls from $29 to $19.

• Following table shows change in consumer surplus when the market price falls from $29 to $19.

1	2	3	4=3-2
Potential Consumer	Consumer Surplus when the Market Price is $29($)	Consumer Surplus when the Market Price is $19($)	Change in individual consumer surplus($)
Consumer 1	6	21	10
Consumer 2	11	16	10
Consumer 3	1	11	10
Consumer 4	-	6	6
Consumer 5	-	1	1
Consumer 6	-	-	-
Total Consumer Surplus	18	55	37

• The above table shows that there is an increase in consumer surplus of $10 each of consumer 1, consumer 2 and consumer 3.

• As the market price falls from $29 to $19, consumer 4 and consumer 5 are willing to buy the product producing a consumer surplus of $6 and $1.

Conclusion:

Thus, the change in total consumer surplus is $37.