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IAI Actuarial Core Principles · Business Economics · Consumer demand and behaviour

A market has a linear demand curve P = 100 - 2Q (P in rupees). The market price is Rs 40. What is total consumer surplus?

Consumer surplus is Rs 900. At a price of Rs 40 quantity demanded is 30 units, and the surplus is the triangle under the demand curve above the price: half times 30 units times the Rs 60 gap between the intercept and the price.

  1. ARs 300
  2. BRs 450Correct
  3. CRs 600
  4. DRs 900
  5. Rs 1,200

Explanation

At P = 40, Q = 30. The demand intercept is 100, so the triangle has height 100 - 40 = 60 and base 30. Area = 0.5 x 60 x 30 = 900... check: 0.5 x 60 x 30 = 900, so the correct value is Rs 900.

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