Question

For the following market demand curve:

1. Find marginal buyer’s WTP at Q = 15.
2. Find CS for P = $35.
3. Suppose P decreases to $10. How much will CS increase due to…

●  Buyers who enter the market

●  Existing buyers paying lower price.

Answer 1

NOTE: Since the market demand curve is not provided, I will use the curve below to answer this question.

1. The marginal buyer's WTP at Q=15 will be $25.
2. CS at P= $35 will be calculated by finding the area of the triangle $(\frac{1}{2}\times b\times h)$

$= \frac{1}{2} \times 5\times 5$

$=\$12.5$

3 P decreases to 10,

• Additional buyers will now fall between triangles A and B. Therefore, CS will be

$(\frac{1}{2} \times 10 \times 10)$ $+ (\frac{1}{2} \times 15 \times 15)$ $= \$162.5$

• Increase in CS on the initial 10 units.

$10\times 15= \$150$