Nick can purchase each milkshake for $2. For the first milkshake purchased Nick is willing to pay $4, for the second milkshake $3, for the third milkshake $2 and for the fourth milkshake $1. What is the value of Nick's consumer surplus for the milkshakes he buys?
A) $2
B) $9
C) $3
D) $10

Question

Quizplus · Accepted Answer

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. Nick is willing to pay $4 for the first milkshake but pays $2, giving a surplus of $2. For the second, he is willing to pay $3 but pays $2, giving a surplus of $1. For the third, he is willing to pay $2 and pays $2, giving no surplus. He won't buy the fourth milkshake as he is only willing to pay $1, which is less than the price. Total surplus is $2 + $1 = $3.

Nick Can Purchase Each Milkshake for $2