Question

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?

Answer 1

Q1
Answer
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
---
PS=price-minimum willingness to accept
=350-200=150
PS=250-200=50
---
so the sum is $300 for both prices
the same as what would have accrued at the $250 price

Q2
Answer
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