Question

Look at the two tables below. What is the total surplus if Bob buys a unit from Carlos? If Barb buys a unit from Courtney? If Bob buys a unit from Chad? If you match up pairs of buyers and sellers so as to maximize the total surplus of all transactions, what is the largest total surplus that can be achieved?

Person Maximum Price Willing to Pay Person Minimum Acceptable Price
Bob $18 Carlos $5
Barb 16 Courtney 7
Bill 14 Chuck 9
Bart 12 Cindy 11
Brent 10 Craig 13
Betty 8 Chad 15

(a) What Is the total surplus if Bob buys a unit from Carlos?
(b) What is the total surplus if Barb buys a unit from Courtney?

Answer 1

Answer:

$13

$9

Explanation:

Total surplus is the sum of consumer surplus and producer surplus.

Consumer surplus is the difference between the willingness to pay of a consumer and the price he pays for the good.

Consumer surplus = willingness to pay - price of the good

Producer surplus is the difference between the least amount a seller is willing to sell his product and the price he sells the product.

Producer surplus = price of the good - least price the seller is willing to sell his product

Total surplus = consumer surplus + producer surplus

Total surplus = willingness to pay - price of the good + price of the good - least price the seller is willing to sell his product

Prices cancel out

Total surplus = willingness to pay - least price the seller is willing to sell his product

A. Total surplus = $18 - $5 = $13

B. Total surplus = $16 - $7 = $9

I hope my answer helps you