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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?
Most Upvoted Answer
Total utility derived from then consumption of a commodity is equal to...
Total Utility and Marginal Utility:

The total utility derived from the consumption of a commodity is Rs. 5, and the marginal utility is 1. This means that the consumer has derived a total utility of Rs. 5 from consuming the first three units of the commodity, and the additional utility derived from the third unit is 1.

Consumer Surplus:

Consumer surplus is the difference between the total amount that a consumer is willing to pay for a commodity and the actual amount that the consumer pays. In this case, the consumer has paid a certain amount for the three units of the commodity, but he is willing to pay more than that. The consumer surplus can be calculated as follows:

Consumer Surplus = Total Amount Consumer is Willing to Pay - Actual Amount Paid

To calculate the total amount that the consumer is willing to pay, we can use the concept of marginal utility. The consumer is willing to pay for each unit of the commodity until the marginal utility of the last unit is equal to the price paid for that unit. In this case, the consumer has bought three units of the commodity, and the marginal utility of the third unit is 1. Therefore, the consumer is willing to pay Rs. 1 for the third unit, which is also the price paid for that unit. For the first two units, the consumer is willing to pay more than the price paid, as the marginal utility of those units is higher than 1.

Let us assume that the consumer is willing to pay Rs. x for the first two units. Then, the total amount that the consumer is willing to pay for the three units can be calculated as follows:

Total Amount Consumer is Willing to Pay = (Marginal Utility of First Unit + Marginal Utility of Second Unit + Marginal Utility of Third Unit) x Price Paid for Third Unit

Total Amount Consumer is Willing to Pay = (2 + 2 + 1) x 1

Total Amount Consumer is Willing to Pay = Rs. 5

Therefore, the consumer surplus can be calculated as follows:

Consumer Surplus = Total Amount Consumer is Willing to Pay - Actual Amount Paid

Consumer Surplus = Rs. 5 - (3 x 1)

Consumer Surplus = Rs. 2

Hence, the correct option is (a) Rs. 2.
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Community Answer
Total utility derived from then consumption of a commodity is equal to...
Consumer surplus = total utility minus quantity that the consumer is willing to buy
5-3 = 2
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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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