The current price for a good is $25 , and 100 units are demanded at that price. The price elasticity of demand for the good is negative 1. When the price of the good drops by 4 percent to $24 , consumer surplus increases by $ nothing. (Enter your response to the nearest penny.)

Consumer surplus increases by $2

Explanation:

The consumer surplus can be defined as the benefit that consumers gain when they pay less for a good that they are willing to pay more for.

a). Determine the final demand as follows;

Price elasticity of demand=% change in price/% change in demand

where;

price elasticity of demand=-1

% change in price={ (Final price-initial price) / initial price}*100

Final price=$24

initial price=$25

% change in price = (24-25) / 25 = (1/25) * 100=-4%

% change in demand=x

replacing in the original expression;

-1=-4/x

x=4%

% change in quantity={final quantity-initial quantity/initial quantity}*100

let final quantity=y

4%={ (y-100) / 100}*100

0.04 = (y-100) / 100

4=y-100

y=4+100=104

final quantity=104 units

Consumer surplus = (1/2) * change in price*change in quantity

where;

change in price=25-24=1

change in quantity=104-100=4

Consumer surplus = (1/2) * 1*4=2

Consumer surplus increases by $2