Intermediate Microeconomics · free preview

Consumer Surplus

Reservation prices stack into a demand curve, consumer surplus is the area under demand above the price paid, and for quasilinear preferences it exactly measures the welfare of price changes.

1. Reservation prices

Reservation prices

2. The area under the curve

The area under the curve

3. When the area is exact

When the area is exact

4. Applications

Applications

5. The discrete count

Reservation prices run 10, 9, 8, 7, 6, 5 for successive units and price is 6. How many units are bought?

6. The triangle computation

Linear demand P equals 10 minus Q over 10 at price 6. What is consumer surplus?

7. A price drop's gain

Same demand, price falls from 6 to 4. By how much does consumer surplus rise?

8. When the area is exact

For which preference family is the demand-curve area an exact welfare measure?

9. Surplus at a lower price

Same linear demand, compute consumer surplus at price 4, and write the number.

10. Quantity at the choke

At what quantity does this demand curve reach the price axis? Compute Q when P equals 0, and write the number.

11. Units bought at seven

Reservation prices run 10, 9, 8, 7, 6, 5 for successive units and the price is 7. How many units are bought?

12. Surplus from the reservation ladder

With reservations 10, 9, 8, 7, 6, 5 and price 6, what total surplus do the purchases deliver?

13. Surplus higher up the curve

For the linear demand P equals 10 minus Q over 10, what is consumer surplus at price 8?

14. Surplus midway down

Same demand, price 5. What is consumer surplus?

15. Surplus at the high price

For P equals 10 minus Q over 10, compute consumer surplus at price 8, and write the number.

16. Surplus at the mid price

Same demand, compute consumer surplus at price 5, and write the number.

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