Question

The Kreidler Kids company can produce swing sets for $1,000. Kendra wants a new swing set for her children and will pay $1,500 for it. Kendra finds the swing set she wants and pays $1,500 for it from the Kreidler Kids company. The Kreidler Kids company has

Group of answer choices

A zero social surplus

a consumer surplus of $500.

a social surplus of $1,500.

a producer surplus of $500.

Answer 1

Kendra willing to pay a maximum of $1500 for a swing set. Kendra buys a swing set for $1500.

Consumer surplus = Willingness to pay - Actual Paid price.

Consumer surplus = $1500 - $1500

Consumer Surplus = $0.

Kreidler Kids company can produce swing sets for $1000. Hence, the minimum acceptable price is $1000 and the producer sell it for $1500.

Producer surplus = Actual Price received - Minimum acceptable price.

Producer surplus = $1500 - $1000

Producer surplus = $500.

Social surplus = Consumer surplus + Producer surplus

Social surplus = $0 + $500

Social surplus = $500.

Answer: Option (D) i.e., a producer surplus of $500