Book Edition | 7th Edition |
Author(s) | Sexton |
ISBN | 9781285859439 |
Publisher | Cengage Learning |
Subject | Economics |
Imagine it is 115 degrees in the shade. Do you think you would get more consumer surplus from your first glass of iced tea than you would from a fifth glass?
Remember that consumer surplus is the benefit to a consumer when they pay less than they are willing to pay. In other words, it is the difference between what they pay and what they are willing to pay. In such a high temperature, consumers are willing to pay a very high price for the first drink as shown below
However, for the fifth drink, they are only willing to pay P5 which is really close to the price that they are charged Pe hence a smaller consumer surplus. We can see that the first drink has more consumer surplus, because the consumer values the drink highly
Yes/True