First,label the following scenarios as to whether they would create a producer or consumer surplus. Then, after you have labeled each scenario, calculate the ensuing surplus.
Claire is trying to sell her used calculus textbook online. She asks for $150 or best offer and is willing to sell for anything over $100. She is able to sell it for $125.
consumer surplus 25
To determine whether a scenario creates a producer or consumer surplus, we need to understand the concepts of producer and consumer surplus.
Producer surplus: It refers to the difference between the price at which a producer is willing to sell a good (seller's reservation price) and the price they actually receive. It measures the benefit or surplus received by the producers in a transaction.
Consumer surplus: It refers to the difference between the price a consumer is willing to pay (buyer's reservation price) and the price they actually pay. It measures the benefit or surplus received by the consumers in a transaction.
In Claire's scenario, the given information states that she is willing to sell her calculus textbook for anything above $100. She ends up selling it for $125.
To determine the producer surplus:
Producer surplus = Selling price - Seller's reservation price
= $125 - $100
= $25
To determine the consumer surplus:
Consumer surplus = Buyer's reservation price - Selling price
= $150 - $125
= $25
Therefore, in this scenario, both the producer surplus and consumer surplus are $25.