Suppose an individual’s demand curve for a good is described by the demand function P=60-2Q. If the equilibrium price in the market is P0=$40, then consumer surplus is:

To find the consumer surplus, we need to first determine the quantity demanded at the equilibrium price of $40 using the demand function ( P = 60 - 2Q ).

Setting ( P = 40 ): [ 40 = 60 - 2Q ] Rearranging the equation gives: [ 2Q = 60 - 40 \ 2Q = 20 \ Q = 10 ]

At the equilibrium price of $40, the quantity demanded is 10.

Next, to calculate consumer surplus, we need to determine the price consumers are willing to pay for this quantity based on the demand function. The maximum price consumers are willing to pay when ( Q = 10 ) is found by substituting ( Q ) back into the demand function: [ P = 60 - 2(10) = 60 - 20 = 40 ]

To find the maximum price consumers would pay for the first unit, set ( Q = 0 ): [ P = 60 - 2(0) = 60 ]

The area of consumer surplus can be visualized as a triangle formed above the price level of $40 up to the