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Price ($)
Domestic
70
Supply
60
50
40
30
20
Domestic
Demand
10
0
20...
Oct 30, 2023
Price ($)
Domestic
70
Supply
60
50
40
30
20
Domestic
Demand
10
0
200
300
100
400
500
Quantity
The graph provided depicts New Zealand's domestic supply and demand for wool.
(a) Calculate the consumer surplus if New Zealand does not trade with the rest of the world. Show your work.
answer: To calculate the consumer surplus, we need to find the area between the demand curve and the price line up to the quantity demanded. In this case, the quantity demanded is 200 units.
Consumer Surplus = 0.5 * (Price - Minimum Price) * Quantity
Consumer Surplus = 0.5 * (70 - 10) * 200
Consumer Surplus = 0.5 * 60 * 200
Consumer Surplus = 6,000
Therefore, the consumer surplus if New Zealand does not trade with the rest of the world is $6,000.
Key Concept
Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and the actual price they pay. It represents the benefit or surplus that consumers receive from purchasing a good at a price lower than their willingness to pay.
Explanation
In this case, the consumer surplus is calculated by finding the area between the demand curve and the price line up to the quantity demanded. This represents the additional benefit consumers receive from purchasing wool at a price lower than their maximum willingness to pay.Whatisconsumersurplusandhowisitcalculated?,Generatemeasimilarquestion© 2023 AskSia.AI all rights reserved