Chapter 3.A, Problem 3SQP

To determine

The total surplus with $30 market price and with $15 market price.

Explanation of Solution

Table 1 shows the market price spent and the maximum wiliness to pay by the different potential buyers as follows:

Table 1

Potential buyers	Maximum willingness to pay	Market price
B	$60	$30
J	45	30
S	35	30
Jam	25	30
F	10	30

From this table, it is clear that the maximum willingness to pay of “Jam” and “F” is less than the market price or actual pay, and they would not consume at the market price. Therefore, they can be ignored from the total consumer surplus calculation.

The calculation of consumer surplus with market price $30 is given as follows:

$\begin{array}{c}\text{Consumer surplus}=\left(\begin{array}{l}\left({\text{Willing price}}_{\text{B}}-\text{Market price}\right)+\left({\text{Willing price}}_{\text{J}}-\text{Market price}\right)+\\ \left({\text{Willing price}}_{\text{S}}-\text{Market price}\right)\end{array}\right)\\ =\left(\left(60-30\right)+\left(45-30\right)+\left(35-30\right)\right)\\ =\left(30+15+5\right)\\ =50\end{array}$

The total consumer surplus is 50.

Table 2 shows the market price spent and the minimum willingness to sell by the different potential buyers as follows:

Table 2

Potential buyers	Minimum willingness to sell	Market price
F	$60	$30
B	45	30
A	35	30
P	25	30
Ali	10	30

From this table, it is clear that the minimum willingness to sell price of “F“, “B”, and “A” is greater than the market price or actual pay. Therefore, they will not be ready to sell the product with the given market price. Thus, they can be ignored from the total producer surplus calculation.

The calculation of producer surplus with market price $30 is given as follows:

$\begin{array}{c}\text{Producer surplus}=\left(\begin{array}{l}\left(\text{Market price}-{\text{Willing price to sell}}_{\text{P}}\right)+\\ \left(\text{Market price}-{\text{Willing price to sell}}_{\text{A}}\right)\end{array}\right)\\ =\left(\left(30-25\right)+\left(30-10\right)\right)\\ =5+20\\ =25\end{array}$

The total producer surplus is $25.

The total surplus can be calculated as follows:

$\begin{array}{c}\text{Total surplus}=\text{Producer surplus}+\text{Consumer surplus}\\ =\text{25}+50\\ =75\end{array}$

The total surplus is $75.

Table 3 shows the market price spent and the maximum wiliness to pay by the different potential buyers as follows:

Table 3

Potential buyers	Maximum willingness to pay	Market price
B	$60	$15
J	45	15
S	35	15
Jam	25	15
F	10	15

From this table, it is clear that the maximum willingness to pay for “F” is less than the market price or actual pay, and he would not consume at the market price. Therefore, he can be ignored from the total consumer surplus calculation.

the calculation of consumer surplus with market price $15 is given as follows:

$\begin{array}{c}\text{Consumer surplus}=\left(\begin{array}{l}\left({\text{Willing price}}_{\text{B}}-\text{Market price}\right)+\left({\text{Willing price}}_{\text{J}}-\text{Market price}\right)\\ +\left({\text{Willing price}}_{\text{S}}-\text{Market price}\right)+\left({\text{Willing price}}_{\text{Jam}}-\text{Market price}\right)\end{array}\right)\\ =\left(\left(60-15\right)+\left(45-15\right)+\left(35-15\right)+\left(25-15\right)\right)\\ =\left(45+30+20+10\right)\\ =105\end{array}$

The total consumer surplus is 105.

Table 1 shows the market price spent and the minimum willingness to sell by the different potential buyers as follows:

Table 4

Potential buyers	Minimum willingness to sell	Market price
F	$60	15
B	45	15
A	35	15
P	25	15
Ali	10	15

From this table, it is clear that the minimum willingness to sell price of “F“, “B”, “A”, and “F” is greater than the market price or actual pay. Therefore, they will not be ready to sell the product with the given market price. Thus, they can be ignored from the total producer surplus calculation.

The calculation of producer surplus with market price $15 is given as follows:

$\begin{array}{c}\text{Producer surplus}=\left(\left(\text{Market price}-{\text{Willing price to sell}}_{\text{Ali}}\right)\right)\\ =\left(15-10\right)\\ =5\end{array}$

The total producer surplus is $5.

The total surplus can be calculated as follows:

$\begin{array}{c}\text{Total surplus}=\text{Producer surplus}+\text{Consumer surplus}\\ =\text{5}+105\\ =110\end{array}$

Total surplus is $110.

Economics Concept Introduction

Consumer surplus: Consumer surplus is the difference between the highest willing price of a consumer and the actual price that the consumer pays.

Producer surplus: It is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.