Question

Consider your favorite fruit or other staple that you consume often every week (beer, milk, hamburger, etc.). How often do you consume the item per week (let that number equal ‘N’)? Now calculate how much you would be willing to pay if you only could buy 1, how about 2, continue this exercise until you arrive at ‘N’ (the number you consume per week). Finally take the difference between the price you were willing to pay and the market price for each marginal item. Add this sum together. What do you perceive this sum to reflect?

Please help, the item I consume often every week is chocolate; I consume it 5 times a week which usually ends up being about 2 bars. They are usually on sale for 2 for $5 when they are not sale they are $3 per bar. I'm only willing to pay $9 for 1

Answer 1

Quantity	willingness to pay	price
1	9	3
2	18	3
Total	27	6

Difference between willingness to pay and actual price

6

15

21

Total=42

N=2 as you consume at most 2 bars a week.Price is fixed at $3.

Your willingness to pay in more than the actual price of the product. The difference between willing to pay and actual price reflects consumers surplus. You willing to pay is your reservation price. When reservation price is greater than actual price the consumer gains because in real terms he is paying lesser for every unit.

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