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Solution
Solution
1. Determine the amount of consumer surplus generated in each of the following situations.
a. Leon goes to the clothing store to buy a new T-shirt, for which he is willing to pay
1. a. Leon’s consumer surplus is $5. This is the difference between how much he is
willing to pay ($10) and how much he does pay ($5).
2. Determine the amount of producer surplus generated in each of the following situations.
a. Gordon lists his old Lionel electric trains on eBay. He sets a minimum acceptable
price, known as his reserve price, of $75. After five days of bidding, the final high
2. a. Gordon will receive no producer surplus since the price received for the trains is
equal to his cost.
S-91
5 A
CHAPTER
Appendix: Consumer and
Producer Surplus
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S-92 CHAPTER 5 APPENDIX CONSUMER AND PRODUCER SURPLUS
Solution
3. You are the manager of Fun World, a small amusement park. The accompanying dia-
gram shows the demand curve of a typical customer at Fun World.
Price
of ride
5
$10
3. a. From the demand curve, you can see that with a price per ride of $5, the customer
takes 10 rides. At this point her consumer surplus is 1 ⁄ 2 × ($10 − $5) × 10 = $25.
b. Since a consumer obtains consumer surplus of $25 from going to Fun World
4. The accompanying diagram illustrates a taxi driver’s individual supply curve (assume
that each taxi ride is the same distance).
Price of
taxi ride
S
$8
the base of the triangle.)
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CHAPTER 5 APPENDIX CONSUMER AND PRODUCER SURPLUS S-93
Solution
b. Suppose that the city keeps the price of a taxi ride set at $4, but it decides to
charge taxi drivers a “licensing fee.” What is the maximum licensing fee the city
could extract from this taxi driver?
4. a. At a price of $4, the taxi driver supplies 40 rides. His producer surplus is therefore
1 ⁄ 2 × $4 × 40 = $80.
b. Since the taxi driver’s producer surplus is $80, this is the most he is willing to pay
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