(a)
The
Answer to Problem 1P
The consumer surplus will be the area a.
Explanation of Solution
In the given figure, the vertical axis is shown as the price of karate lessons and horizontal axis shows the quantity of karate lessons. If the price of each karate lesson is P0, the consumer surplus will be the area a because this is the only part which lies above the price level P0 and below the
Concept Introduction:
It is defined as the difference between the amount which the consumers are willing to pay and the amount which the consumers actually pay. It is the area of above the price level and below the demand curve.
(b)
The consumer surplus if the price of each karate lesson reduces from P0 to P1.
Answer to Problem 1P
The change in consumer surplus will be
Explanation of Solution
In the given figure, the vertical axis is shown as the price of karate lessons and horizontal axis shows the quantity of karate lessons. If the price of each karate lesson reduces from P0 to P1, the consumer surplus will be the sum of area a, b and c.
Because due to fall in the price of karate, more consumers would be willing to join the karate lessons and hence, the quantity demanded also increases.
Concept Introduction:
It is defined as the difference between the amount which the consumers are willing to pay and the amount which the consumers actually pay. It is the area of above the price level and below the demand curve.
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