25. Three consumers: Jon, Wang, and Ariana went to a shopping center to buy a T-shirt. Jon was willing to pay $20, Wang was willing to pay $30, and Ariana was willing to pay $40 for the same show. If the market (equilibrium price) was $20 per shoe, the consumer surplus equals

Question

BlackTom AI · Accepted Answer

To evaluate consumer surplus, we compare each buyer’s maximum willingness to pay with the actual market price and sum the positive differences.
Option 1: $20. This would imply that the total surplus equals zero for those who value the good above price and some misinterpretation. In this scenario, Ariana and Wang would have positive surplus because their WTP exceed $20, so $20 is too low.
Option 2: $30. This matches the sum of individual surpluses: Jon’s WTP is $20, so his surplus is $20 - $20 = $0; Wang’s surplus is $30 - $20 = $10; Ariana’s surplus is $40 - $20 = $20. Total = $0 + $10 + $20 = $30.
Option 3: $40. This would overstate total surplus, effectively counting more than what each buyer gains above price. Only Wang and Ariana contribute positive surplus, totaling $30, not $40.
Option 4: $50. This is even higher and inconsistent with the actual surpluses calculated from each buyer’s WTP minus price; the maximum possible combined surplus here is $30.
In this setup, the market price is $20, and the three buyers’ willingness to pay are $20, $30, and $40 respectively. Calculating each person’s surplus and summing yields 0 + 10 + 20 = 30. Therefore, the total consumer surplus is $30, corresponding to the second option.

25FAL-ECO-8-48630 Midterm Exam [ Thu, 10/16 by 11:59pm] MODULES[1 TO 5]

25. Three consumers: Jon, Wang, and Ariana went to a shopping center to buy a T-shirt. Jon was willing to pay $20, Wang was willing to pay $30, and Ariana was willing to pay $40 for the same show. If the market (equilibrium price) was $20 per shoe, the consumer surplus equals

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