Question:
Internet at first was no charge (P=0, Q=600). Later, institute decided to charge Rs. 100 (P intercept=150). The value of the loss in consumer surplus after the hourly charge is
(1) Rs. 90000.
(2) Rs. 45000.
(3) Rs. 40000.
(4) Rs. 10000.
(5) Rs. 5000.
Correct Answer:
(3)
Answer Explanation:
Original CS at Price 0: Area of the large triangle = $0.5 times 600 times 150 = 45,000$. New CS at Price 100: The slope of the demand curve is $150 / 600 = 0.25$. At P=100, the quantity is 200. The new CS triangle is $0.5 times 200 times (150 – 100) = 5,000$. The total loss in consumer surplus is the difference: $45,000 – 5,000 = 40,000$.
Topic: Consumer Surplus Year: 2019
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