Question

Refer to Table 4.1. If the six people listed in the table are the only consumers in the market, and the equilibrium price is \(11 (not the \)8 shown), how much consumer surplus will the market generate?

Person	Maximum willingness to pay (\()	Actual Price (\))
Bob	13	11
Barb	12	11
Bill	11	11
Bart	10	11
Brent	9	11
Betty	8	11

Short answer

The total consumer surplus in the market is -3.

Step-by-step solution

Step 1. Definition of consumer surplus

The consumer surplus is the difference between what a consumer is willing to pay and what he actually has to pay, which is given by the market price.

It is the gain that a consumer receives after participating in market exchange. For example, if David is ready to spend a maximum of $5 for a coffee cup and the coffee price is $3, then David has a consumer surplus of $2 (=5-3).

Step 2. Calculating the consumer surplus

Consider the table below; the consumer surplus for each consumer is calculated by finding out the difference between maximum willingness to pay and the actual price.

For example, the consumer surplus received by Bob is calculated by subtracting the equilibrium price from the maximum price that Bob is willing to pay (13-11), which is $2. Similarly, the same can be done for others as shown below:

Person	Maximum willingness to pay ($)	Actual price ($)	Consumer surplus ($)
Bob	13	11	2 (=13-11)
Barb	12	11	1 (=12-11)
Bill	11	11	0 (=11-11)
Bart	10	11	-1 (=10-11)
Brent	9	11	-2 (=9-11)
Betty	8	11	-3 (=8-11)
Total			-3 (=2+1+0-1-2-3)

The total surplus of the market is calculated by adding individual consumer surpluses, that is, adding the consumer surplus received by Bob, Barb, Bill, Bart, Brent, and Betty.

Thus, the total consumer surplus in the market is -3.