Microeconomics Theory - Consumer surplus in equilibrium
Consumer surplus is when a consumer derives more benefit (in terms of monetary value) from a good or service than the price they pay to consume it.
Consider a market that has producers and consumers for a certain good, X. The quantity demanded for good x is given by a demand function Qd where Qd= 100-6P where Qd= quantity of X demanded and P is the Price of good X. Also, the quantity supplied, Qs, can be represented by Qs= 4P where Qs is quantity of good X supplied and P is the market price of X. Question: What is the consumer surplus when the market is in equilibrium. Round up your answer to the nearest whole number.
The answer is 133.
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1 solution
When the market is in equilibrium, quantity of a good/service demanded is equal to its quantity supplied. In this case, we can set Qs=Qd. => Qd=100-6P=Qs=4P Solving for P, we get the price as 10 and the equilibrium quantity demanded is 40 units. Hence, the consumers surplus is the area to the left of the Qd curve and above the market Price of P=10. The area of the surplus is 1/2 * (100/6)-10 * 40 = 133.3333......