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2. The effect of transaction costs on decision making This Wendy's commercial confuses the notions of appreciation and consumer surplus. Recall that consumer surplus is the difference between what a consumer is willing to pay for a good and what he or she actually pays for it. According to standard economic theory, consumer surplus must always be at least zero v Economists often simplify economic models by ignoring the role that transaction costs play in decision making. Purchasing a good often involves explicit transaction costs, such as the cost of the gasoline used to get to the store, but there are also implicit transaction costs such as the opportunity cost of the time spent shopping for and acquiring a product. The remaining questions will help you understand the importance of transaction costs. Suppose Simone values consuming her first Double Stack burger at $3.00, and she places no value on any additional burgers. Based on Simone's willingness to pay, her demand curve is plotted on the following graph. For simplicity, assume there is no time cost of waiting in line for her first Double Stack burger. Using the green rectangle (triangle symbols), shade the area representing Simone's consumer surplus from purchasing a burger under these conditions on the following graph. (? Consumer Surplus Demand Price PRICE (Dollars per burger)

2. The effect of transaction costs on decision making This Wendy's commercial confuses the notions of appreciation and consumer surplus. Recall that consumer surplus is the difference between what a consumer is willing to pay for a good and what he or she actually pays for it. According to standard economic theory, consumer surplus must always be at least zero v Economists often simplify economic models by ignoring the role that transaction costs play in decision making. Purchasing a good often involves explicit transaction costs, such as the cost of the gasoline used to get to the store, but there are also implicit transaction costs such as the opportunity cost of the time spent shopping for and acquiring a product. The remaining questions will help you understand the importance of transaction costs. Suppose Simone values consuming her first Double Stack burger at $3.00, and she places no value on any additional burgers. Based on Simone's willingness to pay, her demand curve is plotted on the following graph. For simplicity, assume there is no time cost of waiting in line for her first Double Stack burger. Using the green rectangle (triangle symbols), shade the area representing Simone's consumer surplus from purchasing a burger under these conditions on the following graph. (? Consumer Surplus Demand Price PRICE (Dollars per burger)

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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2. The effect of transaction costs on decision making This Wendy's commercial confuses the notions of appreciation and consumer surplus. Recall that consumer surplus is the difference between what a consumer is willing to pay for a good and what he or she actually pays for it. According to standard economic theory, consumer surplus must always be at least zero Economists often simplify economic models by ignoring the role that transaction costs play in decision making. Purchasing a good often involves explicit transaction costs, such as the cost of the gasoline used to get to the store, but there are also implicit transaction costs such as the opportunity cost of the time spent shopping for and acquiring a product. The remaining questions will help you understand the importance of transaction costs. Suppose Simone values consuming her first Double Stack burger at $3.00, and she places no value on any additional burgers. Based on Simone's willingness to pay, her demand curve is plotted on the following graph. For simplicity, assume there is no time cost of waiting in line for her first Double Stack burger. Using the green rectangle (triangle symbols), shade the area representing Simone's consumer surplus from purchasing a burger under these conditions on the following graph. Consumer Surplus Demand Price 1 LO PRICE (Dollars per burger)
Transcribed Image Text:2. The effect of transaction costs on decision making This Wendy's commercial confuses the notions of appreciation and consumer surplus. Recall that consumer surplus is the difference between what a consumer is willing to pay for a good and what he or she actually pays for it. According to standard economic theory, consumer surplus must always be at least zero Economists often simplify economic models by ignoring the role that transaction costs play in decision making. Purchasing a good often involves explicit transaction costs, such as the cost of the gasoline used to get to the store, but there are also implicit transaction costs such as the opportunity cost of the time spent shopping for and acquiring a product. The remaining questions will help you understand the importance of transaction costs. Suppose Simone values consuming her first Double Stack burger at $3.00, and she places no value on any additional burgers. Based on Simone's willingness to pay, her demand curve is plotted on the following graph. For simplicity, assume there is no time cost of waiting in line for her first Double Stack burger. Using the green rectangle (triangle symbols), shade the area representing Simone's consumer surplus from purchasing a burger under these conditions on the following graph. Consumer Surplus Demand Price 1 LO PRICE (Dollars per burger)
Suppose Simone just sat down to enjoy the Double Stack burger that she purchased for $1.00. Her friend, Rajiv, would also like a Double Stack burger, but he strongly dislikes standing in line. Rajiv offers to buy Simone's Double Stack rather than wait in line himself and pay $1.00. The following table shows some hypothetical offers Rajiv might make for Simone's burger. First, compute the consumer surplus Simone gets from buying the burger for $1.00, refusing Rajiv's offers, and eating the burger. Enter these amounts in the second column of the following table. Next, compute the consumer surplus she gets from buying the first burger at $1.00, selling it to Rajiv at each price listed, purchasing another burger for $1.00, and consuming it. Enter these amounts in the third column of the table. Again, assume that Simone's cost of waiting in line for a burger is zero. Note: If Simone is willing to sell her burger to Rajiv while at the Wendy's restaurant, she would purchase another burger immediately, since the value of the burger ($3.00) remains higher than the price of the burger ($1.00). Simone's Consumer Surplus from .. .. Purchasing and Consuming Immediately Purchasing, Selling, Purchasing Again, Then Consuming Offer Price from Friend (Dollars) (Dollars) $1.50 $2.00 $2.50 Assuming her cost of waiting in line is zero, what's the lowest of the offers listed in the prior table that Simone would accept in exchange for her burger? $1.50 $2.00 $2.50
Transcribed Image Text:Suppose Simone just sat down to enjoy the Double Stack burger that she purchased for $1.00. Her friend, Rajiv, would also like a Double Stack burger, but he strongly dislikes standing in line. Rajiv offers to buy Simone's Double Stack rather than wait in line himself and pay $1.00. The following table shows some hypothetical offers Rajiv might make for Simone's burger. First, compute the consumer surplus Simone gets from buying the burger for $1.00, refusing Rajiv's offers, and eating the burger. Enter these amounts in the second column of the following table. Next, compute the consumer surplus she gets from buying the first burger at $1.00, selling it to Rajiv at each price listed, purchasing another burger for $1.00, and consuming it. Enter these amounts in the third column of the table. Again, assume that Simone's cost of waiting in line for a burger is zero. Note: If Simone is willing to sell her burger to Rajiv while at the Wendy's restaurant, she would purchase another burger immediately, since the value of the burger ($3.00) remains higher than the price of the burger ($1.00). Simone's Consumer Surplus from .. .. Purchasing and Consuming Immediately Purchasing, Selling, Purchasing Again, Then Consuming Offer Price from Friend (Dollars) (Dollars) $1.50 $2.00 $2.50 Assuming her cost of waiting in line is zero, what's the lowest of the offers listed in the prior table that Simone would accept in exchange for her burger? $1.50 $2.00 $2.50
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