Question

For the following market demand curve:

A. Find marginal buyer’s WTP at Q = 15.

B. Find CS for P = $35.

C. Suppose P decreases to $10. How much will CS increase due to…

● Buyers who enter the market

● Existing buyers paying lower price.

Answer 1

Willingness to Pay (WTP) is the maximum price at which a consumer will necessarily buy one unit of a product. This is in line with the standard economic concept of the consumer reserve price. Some researchers, however, conceptualize WTP as a range.

CS of a unit = (WTP for that unit) - (Price of the unit)

When calculating total CS across given units we can use two methods:

Method 1: Calculate consumer surplus for each unit (using the definition on the previous slide) and add the CS across different units.

Method 2: Calculate CS as the area below the demand curve and above the price for the given range of units.