Question

Melissa buys an iPhone for $240 and gets consumer surplus of $160.

a. What is her willingness to pay?

b. If she had bought the iPhone on sale for $180, what would her consumer surplus have been?

c. If the price of an iPhone were $500, what would her consumer surplus have been?

Answer 1

a) Willingness to pay refers to the sum of the price paid and consumer surplus. Hence, Melissa's willingness to pay is;

$240 + 160= 400$

b) Her consumer surplus at a price of $180 would be;

$400 − 180 = 220$

c) If the price of an iPhone was $500, Melissa would not have purchased it since the price is higher than her willingness to pay. Therefore, there is no consumer surplus she would receive.