Answer is £6.
Total expenditure is 4 x £12 = £48.
Total utility is £15 + £14 + £13 + £12 = £54.
So total consumer surplus is £54 - £48 = £6.
It has nothing to do with marginal utilities.
Think of it this way:
If the price is £16, no one will buy it (this is not stated, but we can assume this is the case since demand curves slope downwards).
If the price is £15, one person will buy it (call this person Alan)
If the price is £14, two people will buy it (one of which is Alan, the other is now Bob)
If the price is £13, three people will buy it (Alan, Bob, and now Charlie)
If price is £12, four people will buy it (Alan, Bob, Charlie, David)
If the price is £11, five people will buy it (Alan, Bob, Charlie, David, Eric)
Now, price is £12, then ABCD will buy it.
A would have paid £15 (A's total utility), but ended up paying £12, so his consumer surplus is £3.
B would have paid £14 (B's total utility), but ended up paying £12, so his consumer surplus is £2.
C would have paid £13 (C'stotal utility), but ended up paying £12 so his consumer surplus is £1.
D paid the maximum he would have paid anyway (D's total utility is £12).
(For E, he would have paid £11, but since price is £12 he won't purchase it).
Total consumer surplus is £3 + £2 + £1 = £6.
Alternatively, if you look at it on a graph, you can quickly draw the demand curve, which is a straight line starting at (0, £16) and going down to (5, £11).
Then draw a horizontal line at the market price, £12.
The total consumer surplus is the area between the market price and the demand curve, which is a triangle of area 6.
You can apply the same principle if you are looking at the demand curve of just one person. E.g. if you were asking for Alan's consumer surplus, knowing that the price and quantity figures presented in the question were relating to him only (i.e. he would buy one unit if price were £15, two units if it were £15, and so on), then on the first unit he would have received a consumer surplus of £3, on the second he would have received a consumer surplus of £2, £1 on the third, and £0 on the fourth unit. If market price is £12 he won't buy a fifth unit. So again his individual consumer surplus is £6.
Last edited by a moderator: Mar 4, 2012