Question

Identify whether each of the following statements best illustrates the concept of consumer surplus, producer surplus, or neither.
(a) I sold a used laptop for $189, even though I was willing to go as low as $180 in order to sell it.
(b) I sold a watch for $54 on eBay last week. This week, someone offered me $189 for it.
(c) Even though I was willing to pay up to $47 for a jersey sweater, I bought a jersey sweater for only $40.

Answer 1

Answer:

a. Producer surplus

b. Neither

c. Consumer surplus

Explanation:

The producer surplus is the difference between the minimum price a producer is willing to accept for a product and the price he actually gets.  

The consumer surplus is the difference between the maximum price a consumer is willing to pay for a product and the price he actually gets.  

a. Here, the person gets $189 for his laptop but he was willing to accept $180 as well. This is an example of producer surplus. The producer surplus, in this case, is $9.  

b. In this example, we only know the price that the producer actually received and the price the consumer actually paid. The maximum price the consumer was willing to pay or the minimum price that the producer was willing to accept is not mentioned. So this is neither an example of producer surplus nor consumer surplus.  

c. Here, the consumer was willing to pay $47 for a sweater, but he actually has to pay $40. This is an example of consumer surplus. The consumer surplus is equal to $7.