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Chapter 3: Q.31 (page 78)

What is consumer surplus? How is it illustrated on

a demand and supply diagram?

Short Answer

Expert verified

Consumer surplus-it's a difference between the amount a consumer willing to pay and the amount actually paying for particular good or service.

Step by step solution

01

Step 1. Concept

Surplus refers to more of a something than you actually need. Though, in economic sense surplus can have different meanings, a surplus in market is different from a budget surplus and economic surplus.

02

Step 2. Explanation


Consumer surplus refers to the difference between the price a consumer is willing to pay and the price they must pay. It is shown by the area between the demand curve and the equilibrium price.

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Most popular questions from this chapter

When analyzing a market, how do economists deal

with the problem that many factors that affect the market

are changing at the same time?

Suppose the price of gasoline is \(1.60 per gallon. Is the quantity demanded higher or lower than at the equilibrium price of \)1.40 per gallon?

What would be the impact of imposing a price floor below the equilibrium price?

Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram. Create a sketch of the diagram if necessary.

a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.

b. The winter is exceptionally cold.

c. A major discovery of new oil is made off the coast of Norway.

d. The economies of some major oil-using nations, like Japan, slow down.

e. A war in the Middle East disrupts oil-pumping schedules.

f. Landlords install additional insulation in buildings.

g. The price of solar energy falls dramatically.

h. Chemical companies invent a new, popular kind of plastic made from oil.

Table 3.8 shows the information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands.

PriceQdQs
\(1205036
\)1504040
\(1803248
\)2102856
\(2402470

(a) What is the quantity demanded and quantity supplied at a price of \)120?

(b) At what price is the quantity supplied equal to 48,000?

(c) Graph the demand and supply curves for bicycles. How can you determine the equilibrium price and quantity from the graph? How can you determine the equilibrium price and quantity from the table? What are the equilibrium price and the equilibrium quantity?

(d) If the price was $120, what would the quantities demanded and supplied be? Would a shortage or surplus exist? If so, how large would the shortage or surplus be?
See all solutions

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