A+ Tutorial: Bumper Crop/Movie/Consumper Surplus
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Farmers have a relatively inelastic demand for their crops. Suppose there is a bumper crop year (an unusually large harvest). Will farmers be happy or sad about the news there has been an unusually large amount of their crop produced this year? Why?
Suppose, in deciding what price to set for its latest animated movie, Disney decided to charge either $14.95 or $12.95 for a video or DVD. It estimated the demand for these videos or DVDs to be quite elastic. What price did it choose and why?
In a competitive market, all consumes pay the same price (equilibrium price) for the goods. Using the concept of consumer surplus, explain why each individual would be willing to pay a higher price and what does this mean regarding the consumer surplus of the last person shown on the demand curve.
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