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Answer :
Final answer:
Considering Sarah and Pete's different willingness to pay for whiskey indicated by their demand curves, it is likely that a price increase would cause a greater loss of consumer surplus for Sarah than for Pete. The exact impact would also be influenced by the elasticity of their demand.
Explanation:
The question revolves around the concept of consumer surplus in economics, particularly about changes in price. Consumer surplus refers to the difference between what consumers are willing to pay for a good or service and what they pay. In the context of Sarah and Pete, the placement of their demand curves implies differences in their willingness to pay for whiskey.
If Sarah's demand curve lies to the right of Pete's, this suggests that Sarah is generally willing to pay more for whiskey than Pete is. Should the price of whiskey increase, both Sarah and Pete will experience a loss in consumer surplus as the price exceeds what they were previously willing to pay. However, given Sarah's higher initial willingness to pay, it is likely that a price increase will lead to a greater loss of consumer surplus for Sarah than it will for Pete.
A key factor influencing this outcome is the elasticity of demand - the sensitivity of quantity demanded to price changes. If demand is inelastic, a price increase can lead to a relatively small decrease in quantity demanded, whereas if demand is elastic, the same price rise can cause a substantial reduction in quantity demanded. Therefore, the extent to which Sarah and Pete's consumer surpluses are impacted by a price increase can also depend on the elasticity of their demand for whiskey.
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