Question

1. You were willing to sell an app that you made for $5 per download on the app store. But you realize soon that the average price of similar apps is $7 and hence, you can charge $7 as well.  You have made a _______ of $______.

   		Producer surplus ; $2
   		Consumer surplus ; $7
   		Producer surplus ; $7
   		Consumer surplus ; $2

Answer 1

The correct answer is (a) Producer surplus ; $2

Producer Surplus is defined as the surplus or benefit received by selling at a price greater than what he is willing to sell. Mathematically, Producer Surplus = Price received - Willingness to sell

Here he is willing to sell at a $5. It is given that he can charge $7 for this and hence Price he will receive = $7

=> Producer Surplus = Price received - Willingness to sell = 7 - 5 = 2

Thus, Producer surplus = $2.

So, option (a) is the right answer and option (c) is incorrect.

Consumer surplus is defined as the benefit received by paying a price less than what he is willing to pay. Here he is selling and not buying. Thus he is a producer of this app and not consumer. So he will receive Producer surplus and not consumer surplus because he is selling and not buying. So, option (b) and (d) are also incorrect.

Hence, the correct answer is (a) Producer surplus ; $2