Consumer Surplus and Valuation: How Much Does Lucinda Value Her GPS System?

Question:

If Lucinda buys a new GPS system for $150 and receives a consumer surplus of $100, how much does she value her GPS system?

Answer:

Lucinda values her GPS system at $250, calculated by adding the price she paid ($150) and her consumer surplus ($100). This indicates that she would have been willing to pay up to $250 for the GPS system.

Consumer surplus is a concept in economics that represents the difference between what consumers are willing to pay for a good or service and what they actually pay. In Lucinda's case, she bought the GPS system for $150 but valued it at $250. This means that she derived extra satisfaction or surplus worth $100 from the purchase.

Lucinda's valuation of her GPS system is based on her willingness to pay for it. By adding the consumer surplus to the price paid, we can determine the total value she places on the GPS system. In this scenario, Lucinda's value for her GPS system is the sum of the price paid and the consumer surplus, which equals $250.

This example illustrates the concept of consumer surplus and how it can be used to determine the value individuals place on goods or services. Lucinda's valuation of her GPS system reflects the additional satisfaction she gained from the purchase beyond the price she paid, highlighting the subjective nature of value.