Question

. Welfare analysis: Basic concepts Identify whether each of the following statements best illustrates the concept...

. Welfare analysis: Basic concepts
Identify whether each of the following statements best illustrates the concept of consumer surplus, producer surplus, or neither.

Statement
Consumer Surplus
Producer Surplus
Neither
I sold a watch for $65 on eBay last week. This week, someone offered me $129 for it.
Even though I was willing to pay up to $40 for a jersey sweater, I bought a jersey sweater for only $33.
I sold a used laptop for $129, even though I was willing to go as low as $120 in order to sell it.

Homework Answers

Answer #1

I sold a watch for $65 on eBay last week. This week, someone offered me $129 for it.

Neither

Even though I was willing to pay up to $40 for a jersey sweater, I bought a jersey sweater for only $33.

Consumer Surplus - CS is the difference between what the consumer is willing to pay and what he actually pays. Thus in case, there is consumer surplus of 40-33 = $7

I sold a used laptop for $129, even though I was willing to go as low as $120 in order to sell it.

Producer Surplus - PS is the difference between the actual price received by the seller and lowest price acceptable to him. In this case PS is 129-120 = $9

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