Question

Suppose the recreational demand function for a beach is given by: x = 4 - (C/500) + q. The number of visits is represented by x, travel cost in dollars is represented by C, and water quality in units is represented by q Assume that the current water quality is 0 (thus q = 0). Consumer surplus for a traveler whose travel cost to the beach is $30 is equal to $_______ (show your answer to 2 decimal places)

Answer 1

From the demand function; x=4 - (C/500) + q

The number of visits = 3.94

Now; Maximum price with demand curve ( i.e when quantity = 0) ;

Maximum price of the travel cost= $2000.

If the demand curve is a straight line, the consumer surplus is the area of a triangle:

,

where P_mkt is the equilibrium price (where supply equals demand), Q_mkt is the total quantity purchased at the equilibrium price and P_max is the price at which the quantity purchased would fall to 0 (that is, where the demand curve intercepts the price axis).

CS = [1/2*3.94*(2000-30)]

Answer. CS = $3880.90