Question 5 (b)(ii)
Priya's consumer surplus if she had bought the iPhone on sale for $210
4 marks
- Time to write
- About 8 minutes
Question
Question 5 (b)(ii) · 4 marksPriya buys an iPhone for $280 and gets consumer surplus of $200.
- If she had bought the iPhone on sale for $210, what would her consumer surplus have been?
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 Willingness to pay found from the first purchase 1½ marks 3 min
- 2 Consumer surplus at $210 1½ marks 2 min
- 3 Why the surplus rises by the price cut 1 mark 2 min
Try it first. About 8 minutes for 4 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Her willingness to pay. Consumer surplus is what a buyer would be willing to pay minus what she pays. From the purchase at $280 with $200 of consumer surplus, Priya's willingness to pay is $280 + $200 = $480, and a sale does not change how much the phone is worth to her.
Consumer surplus at the sale price.
Consumer surplus = $480 − $210 = $270.
The sale price is $70 below the regular price ($280 − $210), and every dollar off the price is a dollar more of surplus for a buyer who would buy anyway: $200 + $70 = $270.
What this shows. Consumer surplus measures the gain a buyer gets from a purchase, valued in money. A lower price leaves the value of the phone to Priya unchanged at $480 but takes less of it away from her, so the whole price cut is passed to her as extra surplus. A seller's price cut is therefore a direct transfer of gain to the buyers who would have bought at the higher price.
Answer. Had Priya bought the iPhone on sale for $210, her consumer surplus would have been $270.
Where the 4 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Willingness to pay found from the first purchase | 1.5 |
| 2 | Consumer surplus at $210 | 1.5 |
| 3 | Why the surplus rises by the price cut | 1 |
| Total | 4 |
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