The above figure shows an individual’s demand curve for time per month

The above figure shows an individual’s demand curve for time per month spent telecommunicating while driving (talking on the car phone.) A car phone is useless except for talking with somebody who is not in the car.

If calls are priced at ten cents per minute, what is the consumer surplus derived from talking? What is the most this person would pay for the car phone? Explain.

ANSWER

The consumer surplus from talking on the car phone is ($2.90 ∗ 20)/2 = $29. This person would pay up to $29 per month to have the phone. Having the phone is worth $29 per month to this person because that is the value this person places on calls from the car phone over and above what is paid just for the calls. The phone has no other value to the person except to make the calls. If the phone cost more than $29 per month this person would feel better off without the phone.