Determine his consumer surplus

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Reference no: EM131171121

Andy’s monthly demand (in number of bars) for “Clif Builder’s” protein bars is given by Q = 8 – 2P + (I – T)/1000, where I is Andy's monthly income, T is his monthly income tax expense and P is the price of Clif bars.

a) Suppose the price of Clif bars is $3.00, Andy’s monthly income is $7,500, and his income tax expense is $2,500. Calculate Andy’s Clif bar consumption at that price, and determine his consumer surplus.

b) Suppose Andy’s income tax expense is decreased by 40% (his income and the price of Clif bars remain the same). Calculate the change in Andy’s consumption and the change in his consumer surplus after the tax decrease.

c) Illustrate your answers to parts a) and b) on a graph. Briefly explain.

Reference no: EM131171121

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