Question

Suppose you are willing to sell you GT500 for $45000 to a buyer who is willing to pay $52000 for it. If the transaction is completed at $48000, how much consumer, producer and total surplus were generated?

Answer 1

Consumer surplus is the area below demand curve and above market price. It is the difference between what consumers are willing to pay and what they actually pay.

Consumer surplus = $52,000 - $48,000= $4000

Producer surplus is the area above supply curve and below market price. It is the difference between what producers get and what is the minimum price at which they are willing to sell.

Producer surplus = $48,000 -$45,000 = $3000.

Total surplus is the sum of consumer surplus and producer surplus.

Total surplus = $4000 + $3000 = $7000.