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Difficulty: EasyConcept and Calculation of Consumer Surplus

A consumer derives a total utility worth N1,500\text{N} 1,500 from consuming 55 units of a commodity. If the market price of the commodity is N200\text{N} 200 per unit, what is the consumer surplus in Naira?

Answer: 500 Naira

Answer

The consumer surplus is N500\text{N} 500.
Consumer surplus is calculated as Total Utility (total willingness to pay) minus Total Expenditure (P×QP \times Q). Here, Total Utility is N1,500\text{N} 1,500, and Total Expenditure is 5×N200=N1,0005 \times \text{N} 200 = \text{N} 1,000. Subtracting N1,000\text{N} 1,000 from N1,500\text{N} 1,500 gives a consumer surplus of N500\text{N} 500.

Step-by-Step Solution

1
Calculate total actual expenditure on the commodity
Total Expenditure = 5×N200=N1,0005 \times \text{N} 200 = \text{N} 1,000
Total expenditure is the actual amount spent by the consumer, found by multiplying price per unit by the number of units bought.
2
Subtract total expenditure from total utility to find consumer surplus
Consumer Surplus = N1,500−N1,000=N500\text{N} 1,500 - \text{N} 1,000 = \text{N} 500
Consumer surplus is the net economic benefit, calculated as the total monetary utility derived minus total expenditure.

Key Concept

Calculation of Consumer Surplus from Total Utility and Total Expenditure
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Topics

Concept and Calculation of Consumer Surplus

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