Question

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. If the Chicago-Atlanta round-trip airfare were $350, should you use the coupon to go to Miami?

Select one:

a. No, your economic surplus would be -$50.

b. No, your economic surplus would be -$100.

c. Yes, your economic surplus would be $50.

d. Yes, your economic surplus would be $400.

Answer 1

I think he should use the coupon and go to miami.

Let's see how?

If you choose for miami then total cost will be cost of airfare plus other costs. Which is 600+900=1500

But, since you can use your coupon then the actual cost comes down to 1500-500=1000.

Now, since your willingness to pay is 1400 usd, so the total benefit from the miami trip is willingness to pay- actual cost= 1400-1000=400 usd(surplus)

In case of Atlanta, since the airfair is 350, and if we use the coupon worth 500, we tend to lose 500-350 usd = 150 usd.

So, he should use the coupon and go to miami.

##option D