If consumers buy 1000 bottles of beer per week, and if the price of beer rises by $0.50 per bottle, then the consumers' surplus will decrease by $500. True, False, or Uncertain. Explain your answer.
I am retiring this question. Using Jacob's numbers, let's assume that the initial price of beer is $2 per bottle and that the demand curve is linear. Furthermore, let's assume that for every $0.50 increase in price, the quantity demand falls by 200 units. These assumptions imply that the demand curve intercepts the price axis at $4.50. The graph below illustrates our situation.
If the price of beer rises from $2 to $2.50, the quantity demanded falls to 800. The resulting loss in consumer surplus is shown as the yellow area. A simple calculation shows that this area equals $450. That is, CS will fall by less than $500.