You buy some beads and string from a student on campus to make a bracelet for yo
ID: 1161990 • Letter: Y
Question
You buy some beads and string from a student on campus to make a bracelet for yourself. You valued the materials at $10 but were charged only $7. Unknown to you, the seller would have sold them for $5. After you make the bracelet, you like it more than the original materials used to make it. You value the bracelet at $17. One day, a random stranger (who values your bracelet at $26) compliments the bracelet and offers you $20 for it, and you decide to sell it to the stranger. What is the total surplus generated from the original purchase of beads and string combined with the sale of the bracelet to the stranger? Total surplus = $
Explanation / Answer
Consumer Surplus in two stages
When you buy the material at $7 where you perceive the price to be $10 therefore CS1=$3
When Stranger who values the bracelet at $26 and buys it for $20 therefore CS2=$6
Producer Surplus in two stages
When seller of material sold the material at $7 where he would have done it for $5 therfore PS1=$2
When i valued it to be $17 but sold at $20 PS2=$3
Total Surplus=CS1+CS2+PS1+PS2=3+6+2+3=$14
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