Question

You are thinking about renting a room in a house next year with three of your friends. For each month’s rent, you are willing to pay $580, your first friend is willing to pay $550, your second friend is willing to pay $560, and your third friend is willing to pay $610. The landlord agrees to offer each of you separate leases but will charge you all the same price: $550.

You decide this is a good deal, so you and your friends move in. A couple of months later, you learn from someone who knows the landlord that he would have been willing to rent each room for $500 per month.

What is the amount of producer surplus per month?

What is the amount of total consumer surplus per month?

What is the amount of total surplus each month?

**I keep getting the wrong answer thanks in advance!

Answer 1

Consumer surplus: Is the difference amount at which consumer is willing to pay and amount he is actually paying

Producer surplus is the difference in the amount at which producer willing to supply and the amount he is actually trading.

Person(1)	Amount willing to pay(2)	Amount being paid(3)	Consumer surplus(4) =(2)-(3)	Amount producer is getting(5)	Amount at which producer is willing to give(6)	Producer surplus(7) =(5)-(6)
Me	580	550	30	550	500	50
1st friend	550	550	0	550	500	50
2nd friend	560	550	10	550	500	50
3rd friend	610	550	60	550	500	50

a) Producer Surplus = 50+50+50+50 = 200

b) Consumer surplus = 30+0+10+60 = 100

c) Total surplus = Producer surplus+ consumer surplus

Total surplus = 200+100 = 300