Chapter 4: Market Outcomes and Tax Incidence Page 116 4.1. What are consumer sur

Question

Chapter 4: Market Outcomes and Tax Incidence Page 116 4.1. What are consumer surplus and producer surplus? Judy purchased a speedboat for $120,000. She was willing to pay $150,000. After a few years, she wanted to sell the boat for $85,000 and ended up selling it to Gary for $90,000. What is true about the surplus generated by the speedboat? Select all that apply. Correct Answer(s) Judy's producer surplus is $270,000. Judy's producer surplus is $5,000. Gary's consumer surplus is $5,000. Judy's consumer surplus is $30,000. Incorrect Answer(s)

Explanation / Answer

The asnwer is B and D .

Correct answers are --- >> Judy's producer surplus is $5000 and Judy's consumer surplus is $30000.

because, Consumer surplus is consumer gain after trade for what he/she is willing to pay for the product and what he/she actually paying. thus therefore, Judy willingness to pay is $150,000 for a boat but she buy a boat at $120,000 . so $30000 is Judy surplus which she gain after trade.

on the other hand. producer surplus is also the gain after trade . judy want to sale the boat at $85000 but she can able to sell at $90000. so therefore, $5000 is the surplus which is known as producer surplus.

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