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hetical offers Eric might make for Ginny's burger. Sinny gets from buying the burger for $1.00, refusing Eric's offers, and eating Cable. Next, compute the consumer surplus she gets from buying the first burg burger for $1.00, and consuming it. Enter these amounts in the third column o. ger is zero. ger to Eric while at the Wendy's restaurant, she would purchase another burge In the price of the burger ($1.00). Ginny's Consunier Surplus from... sing and Consuming Immediately Purchasing, Selling, Purchasing Ac (Dollars) (Dollars) + zero, what's the lowest of the offers listed in the prior table that Ginny would a

hetical offers Eric might make for Ginny's burger. Sinny gets from buying the burger for $1.00, refusing Eric's offers, and eating Cable. Next, compute the consumer surplus she gets from buying the first burg burger for $1.00, and consuming it. Enter these amounts in the third column o. ger is zero. ger to Eric while at the Wendy's restaurant, she would purchase another burge In the price of the burger ($1.00). Ginny's Consunier Surplus from... sing and Consuming Immediately Purchasing, Selling, Purchasing Ac (Dollars) (Dollars) + zero, what's the lowest of the offers listed in the prior table that Ginny would a

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose Ginny just sat down to enjoy the Double Stack burger that she purchased for $1.00. Her friend, Eric, would also like a Double Stack burger, but he strongly dislikes standing in line. Eric offers to buy Ginny's Double Stack rather than wait in line himself and pay $1.00. The following table shows some hypothetical offers Eric might make for Ginny's burger. First, compute the consumer surplus Ginny gets from buying the burger for $1.00, refusing Eric'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 Eric 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 Ginny's cost of waiting in line for a burger is zero. Note: If Ginny is willing to sell her burger to Eric while at the Wendy's restaurant, she would purchase another burger immediately, since the value of the burger ($2.00) remains higher than the price of the burger ($1.00). Offer Price from Friend $1.25 $1.75 $2.25 O $1.25 O $1.75 Assuming her cost of waiting in line is zero, what's the lowest of the offers listed in the prior table that Ginny would accept in exchange for her burger? O $2.25 Ginny's Consunier Surplus from... Purchasing and Consuming Immediately Purchasing, Selling, Purchasing Again, Then Consuming (Dollars) (Dollars) + p Now relax the assumption that Ginny's cost of waiting for a Double Stack is zero. Specifically, Ginny values each minute of her time at $0.25. Suppose the wait for a Double Stack is two minutes. Including the value of her time, the cost of obtaining a burger for Ginny is S her consumer surplus from and consuming a burger is S O $1.25 O $1.75 O $2.25 of the following prices, what's the lowest price she would accept from Eric in exchange for her burger? O $2.75 From the previous analysis, you can conclude that the minimum price at which Ginny is willing to sell her Double Stack burger to Eric the longer her wait in line. and
Transcribed Image Text:Suppose Ginny just sat down to enjoy the Double Stack burger that she purchased for $1.00. Her friend, Eric, would also like a Double Stack burger, but he strongly dislikes standing in line. Eric offers to buy Ginny's Double Stack rather than wait in line himself and pay $1.00. The following table shows some hypothetical offers Eric might make for Ginny's burger. First, compute the consumer surplus Ginny gets from buying the burger for $1.00, refusing Eric'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 Eric 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 Ginny's cost of waiting in line for a burger is zero. Note: If Ginny is willing to sell her burger to Eric while at the Wendy's restaurant, she would purchase another burger immediately, since the value of the burger ($2.00) remains higher than the price of the burger ($1.00). Offer Price from Friend $1.25 $1.75 $2.25 O $1.25 O $1.75 Assuming her cost of waiting in line is zero, what's the lowest of the offers listed in the prior table that Ginny would accept in exchange for her burger? O $2.25 Ginny's Consunier Surplus from... Purchasing and Consuming Immediately Purchasing, Selling, Purchasing Again, Then Consuming (Dollars) (Dollars) + p Now relax the assumption that Ginny's cost of waiting for a Double Stack is zero. Specifically, Ginny values each minute of her time at $0.25. Suppose the wait for a Double Stack is two minutes. Including the value of her time, the cost of obtaining a burger for Ginny is S her consumer surplus from and consuming a burger is S O $1.25 O $1.75 O $2.25 of the following prices, what's the lowest price she would accept from Eric in exchange for her burger? O $2.75 From the previous analysis, you can conclude that the minimum price at which Ginny is willing to sell her Double Stack burger to Eric the longer her wait in line. and
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 they actually pay for it. According to standard economic theory, consumer surplus must always be 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 Ginny values consuming her first Double Stack burger at $2.00, and she places no value on any additional burgers. Based on Ginny'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 Ginny's consumer surplus from purchasing a burger under these conditions on the following graph. PRICE (Dollars per burger) Demand O 3 QUANTITY (Double Stack burgers) 2 4 Price Consumer Surplus
Transcribed Image Text: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 they actually pay for it. According to standard economic theory, consumer surplus must always be 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 Ginny values consuming her first Double Stack burger at $2.00, and she places no value on any additional burgers. Based on Ginny'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 Ginny's consumer surplus from purchasing a burger under these conditions on the following graph. PRICE (Dollars per burger) Demand O 3 QUANTITY (Double Stack burgers) 2 4 Price Consumer Surplus
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