A consumer values a car at $20,000 and it costs a producer $15,000 to make the...

A consumer values a car at $20,000 and it costs a producer $15,000 to make the same car. If the transaction is completed at $18,000, the transaction will generate

a. no surplus

b. $5,000 worth of seller surplus and unknown amount of buyer surplus.

c. $2,000 worth of buyer surplus and $3,000 of seller surplus.

d. $3,000 worth of buyer surplus and unknown amount of seller surplus.

Solutions

Expert Solution

Consumer surplus = Willingness to pay (value to the buyer) - Market Price = 20000 - 18000 = $ 2000

Producer surplus = Market price - Cost (production) = 18000 - 15000 = $ 3000

Option c is correct

Rahul Sunny answered 1 year ago

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