Refer to the below figure

Economics Dec 15, 2020

Refer to the below figure. What happens to consumer surplus when the price of the product changes from $6 per unit to $3 per unit? Price ($) 7 6. 5 D market 1 0 1 2 3 4 5 6 Quantity (in hundred units) Decreases Increases Becomes equal to producer surplus Becomes less than produce surplus

Expert Solution

Correct option - increases.

Consumer surplus = 0.5*(willing to pay- price*quantity)

At Price = $6, quantity = 1

CS = 0.5(7 - 6)*1 = 0.5*1*1 = 0.5

At price = $3, quantity = 5

CS = 0.5*(7-3)*5 = 0.5*4*5 = 2*5 = 10

Hence consumer surplus increases.

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