Author Question: Jenn is willing to pay 75 for a purse and the purse's price is 60. What is Jenn's consumer surplus? ... (Read 123 times)

123654777 · **on:** Jun 29, 2018

Jenn is willing to pay 75 for a purse and the purse's price is 60. What is Jenn's consumer surplus?

What will be an ideal response?

Question 2

Can electric utility companies always raise their total revenue by raising their rates?

What will be an ideal response?

aruss1303 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The consumer surplus equals the difference between the marginal benefit of the good and the price actually paid. Jenn is willing to pay 75 for the purse, so its marginal benefit to her is 75. However, she only must pay 60, so Jenn has a consumer surplus of 75 - 60 = 15.

Answer to Question 2

No. As electric companies continue to raise rates, customers move up along their demand curves for electricity, obeying the law of demand. As they do, they eventually enter an elastic portion of their demand curves, along which total revenue will decrease when rates increase further.