Answer:
The question is not complete, this part could complete the question:
"If Realtors charge a commission of 5 percent of the selling price and all Realtors have opportunity costs of $2,000 for negotiating a sale, will Carlos hire a Realtor? If so, how will total economic surplus be affected?"
The answer is, the total economic surplus increased from $20,000 to $248,000
Explanation:
Firstly it is important to understand what <em>marginal cost, marginal benefit </em>and <em>Asymmetric information </em>is. Marginal cost is the cost added from the spending of one more unit of resource while marginal benefit is considered as the benefit from spending one more unit of resource. Asymmetric information is a situation whereby one part of the transaction possess more information and material facts than other parts.
Carlos reservation price is $130,000. He wishes to sell to sell for $140,000 to Whitney who has a reservation price of $150,000. Therefore the surplus to Carlos is 140,000 - 130,000 = $10,000 and surplus to Whitney is 150,000 - 140,000 = $10,000. Therefore, the total economic surplus is $20,000
If Carlos sells through a realtor who charges 5% if the property is sold for $300,000 to someone with a reservation price of $350,000. The surplus will be:
5% × 300,000 - 2000 = $13,000.
Now, the surplus is 300,000 - 130,000 + 15,000 = $185,000
Therefore, the surplus to the buyer is
350,000 - 300,000 = $50,000
Hence, the total economic surplus increased from $20,000 to $248,000
