Consumer Surplus Calculation: Eddie's TV Purchase

How to find Eddie's consumer surplus in this scenario?

Eddie goes to Best Buy to buy a new TV. He is willing to pay $400 for the TV he wants. If the price for the TV is $275, what is Eddie's consumer surplus?

a. $400

b. $675

c. $275

d. $125

Answer:

The correct answer is d. $125. Eddie's consumer surplus, given the amount that he is willing to pay and the price of the television is $125.

Eddie's consumer surplus can be calculated by finding the difference between his willingness to pay and the actual price he pays for the TV. In this case, Eddie's willingness to pay is $400, and the price of the TV is $275.

Consumer Surplus Formula: Willingness to Pay - Actual Price

Consumer Surplus Calculation:

Consumer Surplus = $400 - $275

Consumer Surplus = $125

Therefore, Eddie's consumer surplus is $125. This represents the additional value or benefit that Eddie receives from purchasing the TV at a price lower than what he was willing to pay.