Question

A consumer values a car at $20000 and it costs a producer $15000 to make the same car. If the transaction is completed at $18000, the transaction will generate:

Answer 1

Answer:

The transaction will generate a buyer surplus of $2,000 and a sellers surplus of $3,000

Explanation:

A consumer values a car at $20,000

It costs a producer $15,000 to generate that same car

The transaction is complete at $18,000

The first step is to calculate the buyer's surplus

= $20,000-$18,000

= $3,000

The seller's surplus can be calculated as follows

= $18,000-$15,000

= $3,000

Hence the transaction will generate a buyer surplus of $2,000 and a sellers surplus of $3,000