A market has four individuals, each considering buying a grillfor his backyard. Assume that grills...

A market has four individuals, each considering buying a grill for his backyard. Assume that grills come in only one size and model. Abe considers himself a grill-master, and finds a grill a necessity, so he is willing to pay $400 for a grill. Butch is a meat-lover, honing his grilling skills, and is willing to pay $350 for a grill. Collin just met the girl of his dreams, and she loves a good grilled steak, so in his effort to impress her he is willing to pay $320 for a grill. Daniel loves grilled shrimp and thinks it might be cheaper in the long run if he buys a grill instead of eating out every time he wants grilled shrimp, so he is willing to pay $200 for a grill. If the market price of grills is $350, given the scenario described, total consumer surplus would be: Multiple Choice $50. $870. $400. $750.

Solutions

Expert Solution

Answer is A. $50.

Consumer surplus is the difference between what the consumer is willing to pay and what he actually paid. In other words difference between willingness to pay and price of good.

Consumer surplus of Abe = 400 - 350 = 50

Consumer surplus of Butch = 350 - 350 = 0

Total consumer surplus = $50

This market includes only two consumers Abe and Butch because Collin and Daniel will not purchase shrimp because price is higher than they willing to pay. So they will not purchase and only two shrimp will be sold in market one purchased by Abe and other by Butch.

Rahul Sunny answered 1 year ago

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