Consumer Surplus Question (what is the formula?)

CFA Level I
#1

When a slice of pizza costs $10, Joey eats 0 slices per week. When a slice of pizza costs $4, Joey eats 20 slices per week. What is the total consumer surplus? I do not know how to compute consumer surplus; therefore I do not have the answer. A similar question is on p. 40 CFAI text, but it really doesn’t explain how to compute consumer surplus very well thanks

#2

is the answer 60? my calculation is (10-4)*20/2

#3

I hate to post a question and not know the answer. I’m sorry. Where can I find the formula for consumer surplus…how did you arrive at your formula? thanks

#4

i think your question is incomplete because consumer surpluus is the difference between the price at which one is willing to pay and the price at which the good is actually being sold multiplied by the difference in the quantity bought before or after the change in price the example on page 40 of CFAI text at $2 per slice she is willing to buy 10 slices this is her marginal benefit but at a give away price of 1.50 she is willing to buy more 20 slice. the value of a slice of pizza is worth $2 to her but she is offered at a give away price of $1.50 so she is willing to buy 20 slices. At that price she gains (2-1.5) * (20-10) = $10 so she has a consumer surplus of $10

#5

Yancey, heha’s calculation is correct. This formula is a simple triangle area computation, since the consumer surplus is the area below the demand curve and above the price (i.e. triangle). Milos

#6

thanks to everybody for their help