Microeconomics
Microeconomics
5th Edition
ISBN: 9781319098780
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
Question
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Chapter 4, Problem 2P
To determine

The amount of producer surplus generated in each of the following situations.

a). Gordon lists his old Lionel electric trains on eBay. He sets a minimum acceptable price, known as his reserve price, of $75. After five days of building, the final high bid is exactly $75. He accepts the bid.

b). So-Hee advertises her car for sale in the used-car section of the student newspaper for $2000 but she is willing to sell the car for any price higher than $1500. The best offers she gets is $1200, which she declines.

c). Sanjay likes his job so much that he would be willing to do it for free. However, his annual salary is $80,000.

Concept Introduction:

Consumer Surplus:

It is defined as the difference between consumer’s willingness to pay and how much does a consumer pay for the goods and services. It is the area above the price level and below the demand curve.

Producer Surplus:

It is defined as the difference between the amount a producer of a good receives and the minimum amount the producer is willing to accept for the good. It is the area below the price level and above the supply curve.

Microeconomics, Chapter 4, Problem 2P

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