Suppose there are three identical vases available to be purchased. Buyer 1 is willing to pay Rs30 for one, buyer 2 is willing to pay Rs25 for one, and buyer 3 is willing to pay Rs20 for one. If the price is Rs25, how many vases will be sold and what is the value of consumer surplus in this market ?
Correct answer: E. Two vases will be sold, and consumer surplus is Rs5.
- A. Three vases will be sold, and consumer surplus is Rs80
- B. One vase will be sold, and consumer surplus is Rs5.
- C. One vase will be sold, and consumer surplus is Rs30.
- D. Three vases will be sold, and consumer surplus is Rs0.
- E. Two vases will be sold, and consumer surplus is Rs5.
Explanation
At Rs25, buyers 1 and 2 purchase because their willingness to pay is at least the price, while buyer 3 does not. Consumer surplus is (Rs30 − Rs25) + (Rs25 − Rs25) = Rs5.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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