Question

Owen is looking to sell his guitar for nothing less than $60. Suppose Shannon offers him $100, although she was willing to pay up to $130 for it. How much total value is created if Owen accepts this trade?

Answer 1

Answer:

The total value created is $70

Explanation:

In this scenario, the total value created is the total monetary benefit of a consumer and a producer with respect to the sale of a product. It therefore, is the sum of the consumer surplus and producer surplus. It is calculated as follows:

Consumer surplus = consumer's willing price - market price = 130 - 100 = $30

Producer surplus = market price - producer's willing price = 100 - 60 = $40

Therefore, total value created = 40 + 30 = $70