BR5B: Bridge: Consumer and Producer Surplus
Question 1
Suppose you search for a used bicycle online, and are willing to pay at most $100. However, you successfully find one for sale priced at \$80. What is the value of your consumer surplus?
A. \$80
B. \$100
C. \$180
D. \$20
Hint
Consumer surplus is the difference between what a consumer is willing to pay for a good and the price paid for the good.Answer
D. \$20 Since you were willing to pay up to \$100 for the used bicycle and only ended up paying \$80 your consumer surplus is \$20.$$\text{Consumer Surplus} = $100-$80 =$20$$
Question 2
Miranda and Jason are in the tutoring business. Miranda is willing to tutor as long as she gets \$20, while Jason will not tutor unless he gets \$35. If the most that someone would pay for tutoring is \$30, how much producer surplus is earned?
A. Miranda = \$20; Jason = -\$5
B. Miranda = \$20; Jason = \$0
C. Miranda = \$10; Jason = -\$5
D. Miranda = \$10; Jason = \$0
Hint
Producer surplus is the difference between the price a seller actually receives for a product and the lowest price they would have accepted (their marginal cost).Answer
D. Miranda = \$10; Jason = \$0 Miranda’s producer surplus is \$10 which is the difference between the price she receives and the price she is willing to tutor for. Jason’s producer surplus is \$0, because he does not receive any gains from offering tutoring.Question 3
Carolina is trying to sell her car, and the lowest amount she is willing to accept is \$2,000. Abdul is interested in buying the car, and although he is willing to pay \$2,500, he negotiates a price of \$2,100. How much consumer surplus does Abdul attain, and what is the total surplus?
A. Consumer surplus = \$100; Total surplus = \$500
B. Consumer surplus = \$400; Total surplus = \$500
C. Consumer surplus = \$100; Total surplus = \$2,100
D. Consumer surplus = \$400; Total surplus = \$2,100
Hint
Consumer surplus is the difference between a buyer's reservation price, or willingness to pay, and the actual price of a good. Producer surplus is the difference between the lowest price a seller will accept and the price she or he receives. Total surplus is producer surplus plus consumer surplus.Answer
B. Consumer surplus = \$400; Total surplus = \$500 Abdul's reservation price for the car is \$2,500, and he pays \$2,100. This gives Abdul a consumer surplus of \$2,500 - \$2,100 = \$400.Carolina would accept \$2,000 for her car, but she sells it for \$2,100. This gives Carolina a producer surplus of \$2,100 - \$2,000 = \$100
Total surplus = Producer surplus + Consumer surplus
Total surplus = \$100 + \$400 = \$500
Question 4
If Avery is willing to pay \$10 for a pizza, Pia is willing to pay \$13, and Sylvio is willing to pay \$15, how much consumer surplus is achieved when the price of pizza is \$12?
A. \$2
B. \$4
C. \$6
D. \$10
Hint
Consumer surplus is the difference between what a consumer is willing to pay for a good and the actual price paid for the good.Answer
B. \$4 Pia's consumer surplus is \$1 while Sylvio's is \$3. Together their total consumer surplus is \$4.Question 5
Grapes are used as an input in the production of wine, and wine and red meat are complements. A decrease in the price of grapes will _________ the total surplus in the market for red meat.
A. increase
B. decrease
C. not change