In: Economics
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.
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