Question

Question: suppose that a customers willingness to pay for a product is $120 in the sellers willingness to sell is 110 if the negotiated price is 119...

a. consumer surplus is negatice.

b. consumer surplus is greater than producer surplus.

c. producer surplus is negative.

d. produxer surplus is greater than consumer surplus.

Answer 1

Answer ) Options D

Consumer surplus is the difference between the price a consumer is willing to pay for buying a good and the price that he/she actually ends up paying.

Mathematically,

Consumer surplus = Willingness to pay - Actual negotiated price

From the given data in the question,

Consumer surplus = 120 - 119 = $1

On the other hand, the producer surplus is the difference between the price at which a producer is willing to sell the goods and the price at which he/she actually sells the goods.

Mathematically,

Producer surplus = Actual negotiated price - Willingness to sell

From the given data in the question,

Producer surplus = 119 - 110 = $9

From the above 2 calculations, we can conclude that the producer surplus is greater than consumer surplus.