Question

There are 100 consumers, each of whom values a concert ticket at a unique whole number dollar amount between $1 and $100. One customer is willing to pay $1, a second is willing to pay $2, a third is willing to pay $3, and so on. An unlimited number of concert tickets are on sale for $15 each. Create a simple demand curve to represent this scenario and using that curve calculate the total consumer surplus. What is the total consumer surplus in this market?
A) $3,612.50
B) $4.250.00
C) $4,887.50
D) $5,000.00

Answer 1

Answer:

A) $3,612.50

Explanation:

There are 85 (= 100 - 15) customers willing to purchase concert tickets that will have some consumer surplus. The first 14 will not purchase the tickets since they value the concert less than $15 and the customer that values the concert at $15 wouldn't have any consumer surplus.

Consumer surplus is the difference between the amount of money a consumer is willing to pay for a good or service, and the actual price of the good or service. In this case consumer surplus goes from $1 to $85. Average consumer surplus = 1/2 x $85

We can calculate it by drawing a graph or by using the following equation:

average consumer surplus x number of consumers = (1/2 x $85) x (100 - 15) = $3,612.50