Alice is willing to spend $30 on a pair of jeans and has a coupon for $10 off she found online

Economics Dec 13, 2020

Alice is willing to spend $30 on a pair of jeans and has a coupon for $10 off she found online. She selects and purchases a $35 pair of jeans, pre-discount. Determine whether this would create a producer or consumer surplus and calculate the ensuing surplus.

Expert Solution

Answer: $5 Consumer Surplus

This creates a consumer surplus as Alice is buying the jeans for less than she was willing to pay for them. The size of the consumer surplus is $30-$25=$5. This is because she was willing to pay $30 for the jeans but instead ended up paying $25.

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