Question

Suppose the market for used Rick Astley cassette tapes is made up of 8 potential buyers. The most each of these buyers is willing to pay for a cassette tape is $2.20, $3, $2, $0.50, $0.90, $2.50, $1.80, and $1.20 respectively.

a. If the price is $2, how many consumers would purchase cassette tapes?

b. If the price was $2.20, how many consumers would purchase cassette tapes?

c. If the price was $2.50, how many consumers would purchase cassette tapes?

d. If the price was $3.00, how many consumers would purchase cassette tapes?

e. Given these 8 potential buyers, plot the demand curve for Rick Astley cassette tapes.

f. If the price of the cassette tapes is $2, calculate the total consumer surplus that would be created in this market.

Answer 1

1. When price is 2, the 3 consumer purchase cassette tapes.

Because consumer surplus = willingness to pay - market price.

When consumer surplus is positive or zero the buyer will buy but if consumer surplus is negative the consumer will not buy. So only 3 consumer who ready to pay $2.20 , $2.50 and $3

b.When price is $2.20, then only 3 consumer purchase the caste tape.

Because only three persons ready to pay equal to or more than $2.20

c) when price is $2.50 then only 2 person purchase the cassette. B

one is ready to pay $2.50 and other ready to $3.

D) when price is $3 only 1 person purchase the cassette. B

only one person ready to pay $3.