Question

The aggregate demand for good X is Q​ = 20 minus ​P, and the market price is P​ = $8. What is the maximum amount that consumers are willing to pay for the quantity demanded at this​ price?

Answer 1

Current market price, P = $8

Calculate the demand at the current market price -

Q = 20 - P = 20 - 8 = 12

Total expenditure incurred by consumers at current market price = Price * Quantity = $8 * 12 = $96

Calculate Price when Q is zero -

Q = 20 - P

0 = 20 - P

P = 20

Calculate the consumer surplus -

CS = 1/2 * (Price when Q is zero - Current market price) * Quantity = 1/2 * (20 - 8) * 12 = $72

Calculate the maximum amount that consumers are willing to pay for the quantity demanded at this​ price -

Maximum amount = Current expenditure + Consumer surplus = $96 + $72 = $168

Thus, the maximum amount that consumers are willing to pay for the quantity demanded at this​ price is $168.