Exercise Set 9.5
CONSUMER SURPLUS

I. Objectives

• To compute the consumer surplus at a certain market price
• To analyze how consumer surplus changes with price

II. Data

• The demand for a good is given by P = 600 - 10Q.
• Select a value for the market price.
• Click on Gimme Consumer Surplus! to obtain the corresponding quantity consumed and the consumer surplus.

III. Questions

1. Sketch the demand curve. Indicate intercepts and slope.
2. What is the significance of the vertical intercept?
3. Select a value for market price: P = ______.
   At this price, consumers will buy _______ units of the good and enjoy a consumer surplus of $ __________. Show calculations. Indicate the relevant values on the graph.
4. Increase P by 10%. The new value of P = _______. At this price:
   1. The quantity demanded of the good will [ increase | decrease ] to ________.
   2. The consumer surplus will [ increase | decrease ] to $ ________.
5. Suppose the demand curve for a good is given by Q = 40 - 0.2P.
   1. Sketch the demand curve. Indicate the intercepts and slope.
   2. At a market price of $120, obtain the quantity demanded and the consumer surplus.
   3. Show that consumer surplus will rise as price decreases.