Answer to Question #147217 in Economics of Enterprise for Muhammad Asim Raza

Question

The market price for tomatoes is $4.00 per kg. However, there are many buyers are willing
to pay more than the market price. At the market price of $4.00, the quantity of tomatoes
demanded is 1,500 kg per month, and quantity demanded does not reach zero until the price
reaches $30.00 per pound. Draw a figure showing this data, calculate the total consumer
surplus in the market for tomatoes, and show the consumer surplus on the graph.

Answer 1

Shaded area on the graph is consumer surplus (CS).

CS = ∆ABC

$CS = \frac{1}{2} \times 1500 \times (30-4) = 19500$

Consumer surplus is equal to the area below demand curve and above price level.