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Total utility derived from then consumption of a commodity is equal to Rs. 5, marginal utility is equal to 1 and consumer has bought 3 units. What will be his consumer surplus?
- a)Rs. 2
- b)Rs. 2.50
- c)Rs. 3
- d)Rs. 4
Correct answer is option 'A'. Can you explain this answer?
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Total utility derived from then consumption of a commodity is equal to...
Explanation:To calculate the consumer surplus, we need to find out the total value of the commodity to the consumer and then subtract the total expenditure on the commodity. Let's break it down step by step:1. Total Utility (TU): Given in the question as Rs. 5.2. Marginal Utility (MU): Given in the question as 1. This means that the consumer derives an additional utility of 1 for each additional unit consumed.3. Units Consumed: Given in the question as 3 units.4. Total Expenditure: Since MU is the additional utility derived from each additional unit, and it is constant at 1, we can assume that the price of each unit is Rs. 1 (as the consumer is willing to pay Rs. 1 for each additional unit). Therefore, the total expenditure on 3 units would be Rs. 3 (3 units * Rs. 1 per unit).5. Consumer Surplus (CS): The consumer surplus is the difference between the total utility derived from the consumption of the commodity and the total expenditure on the commodity. In this case, the consumer surplus is:CS = TU - Total ExpenditureCS = Rs. 5 - Rs. 3CS = Rs. 2So, the consumer surplus in this case is Rs. 2 (Option A).
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Total utility derived from then consumption of a commodity is equal to...
Calculation of Consumer Surplus
Total Utility: Rs. 5
Marginal Utility: 1
Quantity consumed: 3 units
Utility of the 1st unit = 1
Utility of the 2nd unit = 2
Utility of the 3rd unit = 3
Total utility of 3 units = 1+2+3 = 6
Therefore, the consumer surplus can be calculated as follows:
Consumer Surplus = Total Benefit – Total Expenditure
Total Benefit = Total Utility = Rs. 5
Total Expenditure = Quantity consumed x Price per unit
As the price of the commodity is not given, we cannot calculate the total expenditure. However, we know that the marginal utility of the commodity is equal to 1. This means that the consumer is willing to pay up to Rs. 1 for an additional unit of the commodity.
Since the consumer has already bought 3 units, the maximum amount he is willing to pay for the 4th unit is Rs. 1. However, he has paid less than Rs. 1 for the 4th unit (assuming the price remains constant). This difference between the maximum amount he is willing to pay and the actual price he pays is the consumer surplus.
Consumer Surplus = Maximum amount willing to pay – Price paid
For the 4th unit, the consumer surplus is Rs. 1 – Price paid. Since we do not know the price, we cannot calculate the exact consumer surplus. However, we can see that the maximum consumer surplus for the 4th unit is Rs. 1.
Since the consumer has only bought 3 units, his total expenditure is less than the maximum amount he is willing to pay for the 3 units. This means that the consumer surplus for the 3 units is also positive. However, we cannot calculate the exact consumer surplus without knowing the price.
Therefore, the correct answer is option A) Rs. 2. This is because the maximum consumer surplus for the 4th unit is Rs. 1, and the consumer surplus for the first 3 units is also positive.
Total Utility: Rs. 5
Marginal Utility: 1
Quantity consumed: 3 units
Utility of the 1st unit = 1
Utility of the 2nd unit = 2
Utility of the 3rd unit = 3
Total utility of 3 units = 1+2+3 = 6
Therefore, the consumer surplus can be calculated as follows:
Consumer Surplus = Total Benefit – Total Expenditure
Total Benefit = Total Utility = Rs. 5
Total Expenditure = Quantity consumed x Price per unit
As the price of the commodity is not given, we cannot calculate the total expenditure. However, we know that the marginal utility of the commodity is equal to 1. This means that the consumer is willing to pay up to Rs. 1 for an additional unit of the commodity.
Since the consumer has already bought 3 units, the maximum amount he is willing to pay for the 4th unit is Rs. 1. However, he has paid less than Rs. 1 for the 4th unit (assuming the price remains constant). This difference between the maximum amount he is willing to pay and the actual price he pays is the consumer surplus.
Consumer Surplus = Maximum amount willing to pay – Price paid
For the 4th unit, the consumer surplus is Rs. 1 – Price paid. Since we do not know the price, we cannot calculate the exact consumer surplus. However, we can see that the maximum consumer surplus for the 4th unit is Rs. 1.
Since the consumer has only bought 3 units, his total expenditure is less than the maximum amount he is willing to pay for the 3 units. This means that the consumer surplus for the 3 units is also positive. However, we cannot calculate the exact consumer surplus without knowing the price.
Therefore, the correct answer is option A) Rs. 2. This is because the maximum consumer surplus for the 4th unit is Rs. 1, and the consumer surplus for the first 3 units is also positive.
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Total utility derived from then consumption of a commodity is equal to Rs. 5, marginal utility is equal to 1 and consumer has bought 3 units. What will be his consumer surplus?a)Rs. 2b)Rs. 2.50c)Rs. 3d)Rs. 4Correct answer is option 'A'. Can you explain this answer?
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Total utility derived from then consumption of a commodity is equal to Rs. 5, marginal utility is equal to 1 and consumer has bought 3 units. What will be his consumer surplus?a)Rs. 2b)Rs. 2.50c)Rs. 3d)Rs. 4Correct answer is option 'A'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Total utility derived from then consumption of a commodity is equal to Rs. 5, marginal utility is equal to 1 and consumer has bought 3 units. What will be his consumer surplus?a)Rs. 2b)Rs. 2.50c)Rs. 3d)Rs. 4Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Total utility derived from then consumption of a commodity is equal to Rs. 5, marginal utility is equal to 1 and consumer has bought 3 units. What will be his consumer surplus?a)Rs. 2b)Rs. 2.50c)Rs. 3d)Rs. 4Correct answer is option 'A'. Can you explain this answer?.
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