Posted: March 26th, 2018

If the price is $20, how many boxes do you buy? (5%) If the price is $15, how many boxes do you buy? (5%)

1. In the week 2 summary slides, we discussed “consumer surplus” based on a market demand curve. Now let’s think about the consumer surplus from an individual demand curve. You want to buy a box of Vitamin C and this is your demand curve for this product. (Unit of quantity: box.) (39%)

1. If the price is $20, how many boxes do you buy? (5%) If the price is $15, how many boxes do you buy? (5%)
2. If the price is $10, how many boxes do you buy? (5%) Is there any consumer surplus for this transaction? Why? (6%)
3. Suppose the price is $20 and there is a promotion that buy 1 get the 2^nd five dollars off and get the 3^rd ten dollars off. How many boxes of Vitamin C do you buy based on this demand curve? (6%) Is there any consumer surplus for this transaction? Why? (6%)
4. Compare what you spent and what you got between (b) and (c), what do you think of the merchant’s ‘evil’ idea of the pricing strategy for the promotion described in (c)? (6%)