Suppose Kate has an allowance of $36 to spend on sundaes and other goods each month (represented by budget constraint BC). The following graph shows her initial utility (U1) at point A from spending $24 of her total allowance on four sundaes ($6 each) and the remaining $12 on other goods Tool tip: Mouse over the points on the graph to see their coordinates MONEY SPENT ON OTHER GOODS 60 50 30 20 U1 BC 18 24 30 36 MONEY SPENT ON SUNDAES Now suppose Kate\'s parents decide not to allow her to eat sundaes. As a result, she now spends all of her allowance on other goods, moving her to point . At this point, her utility is it was at point A Although her parents do not want her to eat sundaes, they don\'t want to reduce the overall utility Kate gets from her allowance; therefore, they decide to increase her total monthly allowance by just enough to make her as happy as she was when she was allowed to eat sundaes. This amount is represented by the distance between points and is equal to The consumer surplus Kate gets from sundaes at point A is equal to which of the following? The area between U1 and her budget constraint The area of the rectangle bounded by the dashed lines The amount by which her parents increase her allowance
Now suppose Kate\'s parents decide not to allow her to eat sudaes. As a result, she now spends all of her allowances on other goods, moving her to point B. At this point, her utility is lower than it was at point A.
When Kate is not consuming sundaes Kate will spend all the money income on other goods and maximum other good Kate can purchase is 36 units which is at point B.
Although her parents do not ..... sundaes. This amount is represented by the distance between points B to C and is equal to 24.
The consumer surplus Kate gets from sundaes at point A is equal to - C. The amount by which her parents increase her allowance. This is because the compensated amount of the consumer surplus can be recovered after compensating that amount which can help to reach that particular utility.
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