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Jack and Jill each purchase one bottle of water. Jack values water at $15 Jill values...

Jack and Jill each purchase one bottle of water. Jack values water at $15 Jill values water at $4. The price of a bottle of water is $4.00. What is the consumer surplus?

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Answer #1

The consumer surplus is the difference between the actual price of the good and the expected price of the same good by the consumer. Here, Jill has valued the water to be of $4 and she got it for the same price i.e there is no difference between the expected price and actual price. Jill's consumer surplus is zero.

Jack, on the other hand, has an expected value of $15 and he get the water for $4. Here, the difference between the two is $11. That is the consumer surplus for Jack .Total consumer surplus in the market is of $11.

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