Question

True or False: If the price of haircuts rises from $10 to $11, consumers' surplus will fall by 10%

Answer 1

Calculation for decrease in consumer’s surplus;

Initial price= $10

Current price after increase: $11

The difference here is ($11-$10) = $1

In terms of percentage you divide the $1 with the initial price($10) and multiply it by 100%

= 1/10 * 100%

=10%

Thus, it is actually true that consumers’ surplus has fallen by 10%.