Suppose that the price of a bottle of soda is $1 each. Larry is willingto pay $2 for the first bottle, Alan is willing to pay $1.50 for thesecond bottle, Ryan is willing to pay $1.25 for the third bottle, andHolly is willing to pay $0.75 for the fourth bottle. What is the totalconsumer surplus from the consumption of soda?

a. $6.50

b. $5.50

c. $2.75

d. $1.75

The answer is: D) $1.75

Explanation:

Consumer surplus is the difference between the maximum price that a consumer is willing to pay for a good and the actual price paid for the good.

Larry, Alan and Ryan were all willing to pay more for a bottle of soda than the actual price of the soda.

Larry's consumer surplus = $2 - $1 = $1 Alan's consumer surplus = $1.50 - $1 = $0.50 Ryan's consumer surplus = $1.25 - $1 = $0.25

The total consumer surplus is $1 + $0.50 + $0.25 = $1.75