Calculate the loss of consumer surplus

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Assume that there are 1,000 identical consumers in the market for good X, each with the same income and the same preferences. When the price of X is $50, the typical consumer 4 is willing and able to purchase 20 units of X. When the price of X is $40, the typical consumer is willing and able to purchase 25 units of X. (a) Construct the market demand curve (assume it is a straight line) and calculate the loss of consumer surplus if the price increases from $40 to $50. (b) Show the effect of an increase in price from $40 to $50 on a typical consumer, i.e., illustrate the income and substitution effects.

Reference no: EM131164536

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