Consider the demand for Internet service in the United States. Assume that the demand curve is linear, the monthly price is $40, and the equilibrium number of consumers is 50 million. For the average consumer, show willingness to pay and the consumer surplus. (Related to Application 1)

Transcribed Image Text:

1 CONSUMER SURPLUS OF INTERNET SERVICE APPLYING THE CONCEPTS #1: How do we compute consumer surplus? Application What is the consumer surplus from Internet service? Two recent studies compute consumers' willingness to pay for Internet ser- vice. For Japanese consumers, the average willingness to pay for Internet service (e-mail and Web browsing delivered over personal computers) is ¥5,623 per month, compared to an average price of broadband Internet service of ¥4,000. In other words, the average consumer surplus is ¥1,623, or about 40 percent of the price. For U.S. consumers, the average willing- ness to pay for Internet service is $85 per month, and with an average monthly price of $40, the consumer surplus is $45 per month. Related to Exercises 1.8 and 1.9. SOURCES: Based on Gregory Rosston, Scott Savage, Donal Waldman, "House- hold Demand for Broadband Internet Service," Final Report to the Broadband.gov Task Force of the Federal Communications Commission, February 2010; Masanori Kondo, Akihiro Nakamura, Hitoshi Mitomo, "Quantifying the Benefits of the Internet and Its Applications," Keio Communication Review 31 (2009), pp. 37-50.