Question

In Chapter 1, you learned that buying and selling textbooks are two separate decisions made at the margin. Textbooks create value both when they are bought and when they are sold.Think about your decision to buy the textbook for this course. You paid $225 for the book, but you would have been willing to pay $500 to use the book for the semester. Suppose that at the end of the semester you could keep your textbook or sell it back to the bookstore. Once you have completed the course, the book is worth only $70 to you. The bookstore will pay you 50% of the original $225. How much total value have you gained?

Answer 1

Answer:

the total surplus will be: 275 + 32.5 = 307.5

Explanation:

At purchase,  the consumer surplus will be the difference between the amount willing to pay for the book and the book selling price:

500 - 225 = 275

Then, the selling surplus will be the difference between the amount you are willing to sold and the saelling price:

225 x 50% = 112.5

112.5 - 70 = 32.5

the total surplus will be: 275 + 32.5 = 307.5

Answer 2

The correct statement is that the total value gained by the person will be calculated as $307.5 as a forming part of the consumer surplus for purchasing the textbook for such course.

The calculation of the consumer surplus gained by such person will be done by using the formula of amount such person is willing to pay for the book.

Calculation of consumer surplus

The formula for calculation of consumer surplus is as below,

$\rm Consumer\ Surplus= Amount\ Willing\ to\ be\ Paid - Actual\ Selling\ Price$

Applying the given values to the formula above, we get,

$\rm Consumer\ Surplus= 500- 225\\\\\rm Consumer\ Surplus= \ 275$

But, as the consumer is willing to sell the book further after the semesters are over, the actual gains from such surplus will be as below,

$\rm Selling\ Surplus= Amount\ Willing\ to\ be\ Sold -Selling\ Price\\\\\rm Selling\ Surplus= 112.5-70\\\\\rm Selling\ Surplus= \ 32.5$

Hence, the addition of both the values will be the actual amount gained from such surpluses.

$\rm Actual\ Amount\ Gained\ = Consumer\ Surplus+Selling\ Surplus\\\\\rm Actual\ Amount\ Gained\ = 275+32.5\\\\\rm Actual\ Amount\ Gained\ = \ 307.5$

So, the actual amount of surplus gained by the person on such textbook will be $307.5

Hence, the correct statement is that total value gained by the person will be calculated as $307.5 as a forming part of the consumer surplus for purchasing the textbook.

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