Question

# Scenario 1                  You are negotiating with your florist over the price of flowers for your wedding....

Scenario 1

You are negotiating with your florist over the price of flowers for your wedding. You value the floral arrangements at \$500. The florist's cost for the arrangement is \$200. You finally settled on a price of \$250.

1.If your negotiated price had been \$350 instead of \$250, the sum of consumer surplus and producer surplus would be:

 A. less than what would have accrued at the \$250 price. B. the same as what would have accrued at the \$250 price. C. more than what would have accrued at the \$250 price. D. None of the above is necessarily correct.

2. What are producer and consumer surplus?

Q1
the consumer surplus is the area above demand curve and below price, whereas the producer surplus is the area below price and above supply curve.
CS=willingness to pay-price
=500-350=150
and at the first case
CS=500-250=250
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PS=price-minimum willingness to accept
=350-200=150
PS=250-200=50
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so the sum is \$300 for both prices
the same as what would have accrued at the \$250 price

Q2
the consumer surplus is the area above demand curve and below price, whereas the producer surplus is the area below price and above the supply curve