2. Jon buys a jacket for $160. He was willing to pay $200 for the jacket. When h

Question

2. Jon buys a jacket for $160. He was willing to pay $200 for the jacket. When his friend Sam sees the jacket he loves it and is willing to pay $300 for it. Sam offers to buy the jacket from Jon for $250 and Jon agrees. They both seem pleased with the transaction. What is the change in Consumer Surplus in the initial transaction? What is the change in Consumer Surplus, Producer Surplus, and Total Surplus in the second transaction? If the government banned secondary transactions would the help or hurt them and why?

Explanation / Answer

a)Consumer surplus=$200-$160=$40.

b)Consumer surplus=$300-$250=$50

Producer surplus=$250-$200=$50.

Total surplus=$100

c)Government ban would hurt itself since the total surplus is positive.

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