Asked by Mojeed George on May 17, 2024
Verified
Ms.Quasimodo has the utility function U(x, m) 100x x2/2 m, where x is her consumption of earplugs and m is money left over to spend on other stuff.If she has $10,000 to spend on earplugs and other stuff and if the price of earplugs rises from $50 to $70, then her net consumer's surplus
A) falls by 800.
B) increases by 400.
C) falls by 600.
D) falls by 2,800.
E) increases by 1,600.
Consumer's Surplus
The difference between the total amount that consumers are willing and able to pay for a good or service versus the total amount they actually pay.
Earplugs
Small devices inserted into the ear canal to protect the ears from loud noises, water, or to block out sound for concentration or sleep.
- Acquire insight into the dynamics of consumer surplus in response to price adjustments.
Verified Answer
RA
Renee AvrutinMay 18, 2024
Final Answer :
A
Explanation :
The consumer's surplus is the difference between what consumers are willing to pay and what they actually pay. When the price of earplugs increases from $50 to $70, consumers like Ms. Quasimodo can buy fewer earplugs for the same amount of money, reducing their consumer surplus. The exact amount of reduction would depend on the specific utility function and the budget constraint, but without the need to calculate specifics, the principle that an increase in price leads to a decrease in consumer surplus applies, making option A the correct choice.
Learning Objectives
- Acquire insight into the dynamics of consumer surplus in response to price adjustments.