Question 5 (b)(iii)

Priya's consumer surplus if the iPhone cost $560

4 marks

Time to write: About 8 minutes
Topic: Consumer and producer surplus, tariffs and quotas

Question

Question 5 (b)(iii) · 4 marks

Priya buys an iPhone for $280 and gets consumer surplus of $200.

If the price of an iPhone were $560, 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

8 minfor 4 marks

Write it in this order

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Read the data; note exactly what is asked 1 min
1 Willingness to pay found from the first purchase 1 mark 2 min
2 Price above willingness to pay, so she does not buy 2 marks 3 min
3 Consumer surplus zero, not negative 1 mark 2 min

123

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Solution

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Her willingness to pay. Consumer surplus is the buyer's willingness to pay less the price paid. Priya paid $280 and gained $200, so the most she would pay for the phone is $280 + $200 = $480.

Would she buy at $560? A buyer whose willingness to pay is below the price does not buy the good. At $560 the price is $80 more than the phone is worth to Priya ($560 − $480), so buying it would leave her worse off. She does not buy it.

Consumer surplus. Since she does not buy, she pays nothing and gets nothing: her consumer surplus is $0. It is not −$80, because no one is made to buy; the $80 shortfall is simply the reason she stays out of the market.

Answer. At a price of $560, above her willingness to pay of $480, Priya would not buy the iPhone, so her consumer surplus would be $0.

Where the 4 marks sit

#	Component	Marks
1	Willingness to pay found from the first purchase	1
2	Price above willingness to pay, so she does not buy	2
3	Consumer surplus zero, not negative	1
	Total	4

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