2. Individual demand and consumer surplus Consider the market for loft houses. The market price of each loft house is $135,000, and each consumer demands no more than one loft house. Suppose that Darnell is the only consumer in the loft house market. Their willingness to pay for a loft house is $270,000. Based on Darnell's willingness to pay, the following graph shows his demand curve for loft houses. Shade the area representing Darnell's consumer surplus using the green rectangle (triangle symbols). 360 315 270 Darnell's Demand PRICE (Thousands of dollars) 225 180 135 90 90 49 45 0 2 3 QUANTITY (Loft houses) Market Price LO 5 Darnell's Consumer Surplus Now, suppose another buyer, Eleanor, enters the market for loft houses, and her willingness to pay is $180,000. Based on Eleanor's and Darnell's respective willingness to pay, plot the market demand curve on the following graph using the blue points (circle symbol). Next, shade Darnell's consumer surplus using the green rectangle (triangle symbols), and shade Eleanor's consumer surplus using the purple rectangle (diamond symbols). Note: Plot your points as a step function in the order in which you would like them connected. Line segments will connect the points automatically. PRICE (Thousands of dollars) 360 315 270 225 180 135 90 90 45 0 0 2 3 QUANTITY (Loft houses) Demand Curve Darnell's Consumer Surplus Market Price Eleanor's Consumer Surplus 5 True or False: Keeping his maximum willingness to pay for a loft house in mind, Jacques will buy the loft house because it would be worth more to him than its market price of $135,000. Suppose Jacques is willing to pay a total of $90,000 for a loft house. True False 3. Consumer surplus for a group of consumers The following graph plots the demand curve (blue line) for several consumers in the market for motor scooters in Mead, a small town located in Colorado. The Mead market price of a motor scooter is given by the horizontal black line at $60. Each rectangle you can place on the following graph corresponds to a particular buyer in this market: orange (square symbols) for Nick, green (triangle symbols) for Rosa, purple (diamond symbols) for Tim, tan (dash symbols) for Alyssa, and blue (circle symbols) for Brian. Use the rectangles to shade the areas representing consumer surplus for each person who is willing and able to purchase a motor scooter at a market price of $60. (Note: If a person will not purchase a motor scooter at the market price, indicate this by leaving his or her rectangle in its original position on the palette.) 160 Nick 140 120 100 PRICE (Dollars per motor scooter) Rosa Tim 60 80 60 60 40 40 20 20 Alyssa Nick Rosa Market Price Tim Brian Alyssa 0 0 1 2 3 4 5 6 7 8 Brian QUANTITY (Motor scooters) Based on the information on the previous graph, you can tell that consumer surplus in this market will be $ will buy motor scooters at the given market price, and total Suppose the market price of a motor scooter increases to $100. On the following graph, use the rectangles once again to shade the areas representing consumer surplus for each person who is willing and able to purchase a motor scooter at the new market price: orange (square symbols) for Nick, green (triangle symbols) for Rosa, purple (diamond symbols) for Tim, tan (dash symbols) for Alyssa, and blue (circle symbols) for Brian. (Note: If a person will not purchase a motor scooter at the new market price, indicate this by leaving his or her rectangle in its original position on the palette.) 160 140 Nick 120 100 PRICE (Dollars per motor scooter) Rosa Tim 80 50 60 40 40 20 20 Alyssa Nick Market Price Rosa Brian Tim Alyssa 0 0 1 2 3 4 5 6 7 8 Brian QUANTITY (Motor scooters) Based on the information in the second graph, when the market price of a motor scooter increases to $100, the number of consumers willing to buy a motor scooter and total consumer surplus to to $ one consumer two consumers three consumers four consumers five consumers one consumer two consumers three consumers four consumers five consumers