Look at the two tables below. What is the total surplus if Bob buys a unit from
ID: 1155691 • Letter: L
Question
Look at the two tables below. What is the total surplus if Bob buys a unit from Carlos? If Barb buys a unit from Courtney? If Bob buys a unit from Chad? If you match up pairs of buyers and sellers so as to maximize the total surplus of all transactions, what is the largest total surplus that can be achieved?
a. What is the total surplus if Bob buys a unit from Carlos?
b. What is the total surplus if Barb buys a unit from Courtney?
c. What is the total surplus if Bob buys a unit from Chad?
d. If you match up pairs of buyers and sellers so as to maximize the total surplus of all transactions, what is the largest total surplus that can be achieved?
Explanation / Answer
A consumer will only purchase the good if the maximum price willing to pay is greater than or equal to Actual price.
Answer a - If Bob buys a unit from Carlos the surplus will be $12 i.e ( $15 - $3)
Answer b - If barb buys a unit from Courtney the total surplus will be $8 i.e ($12 - $4)
Answer c - If Bob buys a unit from Chad the total surplus will be $7 i.e ($15 - $8)
Answer d - for this we will need to total the surplus of all the transactions which are positive or zero, i.e where maximum amount willing to pay is greater than or equal to Actual price. This implies the following pairs (Bob, Carlos) with an economic surplus of $12, (Barb, Courtney) with an economic surplus of $8, (Bill, Chuck) with an economic surplus of $6, (Bart, Cindy) with an economic surplus of $4, (Brent, Craig) with an economic surplus of $2, and (Betty, Chad) with an economic surplus of $0. Adding this up across all pairs gives us a total economic surplus of $32. Therefore largest total surplus that can be achieved is $32.
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