The graph shows the demand curve for DVDs and the market pri

The graph shows the demand curve for DVD_s and the market price of DVD With the given demand for DVDs, if the price of a DVD falls from $20 to $10. how docs consumer surplus change? Consumer surplus by

Solution

The given figure shows,

Price when quantity demanded is zero = $4 per ice-cream cone

Market price = $2 per ice-cream cone

Quantity demanded = 20 ice-cream cones

Calculate consumer surplus -

CS = 1/2 * (Price when quantity demanded is zero - Market price) * Quantity demanded

     = 1/2 * ($4 - $2) * 20

     = $20

The consumer surplus at initial quantity demanded is $20.

Now demand doubles, but other attributes remain same -

New quantity demanded = 40 ice-cream cones

Price when quantity demanded is zero = $4 per ice-cream cone

Market price = $2 per ice-cream cone

Calculate consumer surplus -

CS = 1/2 * (Price when quantity demanded is zero - Market price) * Quantity demanded

     = 1/2 * ($4 - $2) * 40

     = $40

Consumer surplus when demand doubles is 40.

So, if demand doubles, consumer surplus increases by $20.