a See page 155 03 Question (3 points) You are thinking about renting a room in a

Question

a See page 155 03 Question (3 points) 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 $530, your first friend is willing to pay $500, your second friend is willing to pay $560, and your third friend is willing to pay $560. The landlord agrees to offer each of you separate leases but will charge you all the same price: $500. 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 $450 per month.

Explanation / Answer

Ans. We know that consumer surplus is the difference between the amount , consumers are willing to pay and what they actually pay. So in this question it's clearly written that Maximum amount consumer is willing to pay is $560 , $530 $560 and $500 but they actually are paying $500 , hence Total Consumer Surplus is $530 - $500 + $560 - $500 + $560 - $500 + $500 - $500 = $60 + $60 + $30 + $0 = $150 . We also know that Producer Surplus is the difference between the Market Price and the Minimum Price Producer is willing to offer. So in this question , Lowest Price at which Landlord is willing to rent each room is $450 and the Price Which he was offering before was $500 . So the Producer Surplus is $500 - $450 = $50. Now , Total Surplus is the Sum of Customer Surplus and Producer Surplus ie $150 + $50 = $200

Hence , Part 1 = $50

Part 2 = $150

Part 3 = $200.

I hope you understood the answer , Do ask in case of any doubts.

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Best of Luck !! Keep Chegging !!

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