Tailored Clothes Assume that you were ready to buy a custom tailored dress (or m
ID: 1197570 • Letter: T
Question
Tailored Clothes
Assume that you were ready to buy a custom tailored dress (or men’s suit) and you are prepared to pay up to $200 for it. Also assume that the tailor is prepared to sell that item of clothing for as little as $100.
When you arrive at the tailor shop, the posted price for the item is $150. Discuss how this scenario relates to producer and consumer surplus and how such surpluses, if any, affect buying and manufacturing decisions
Discuss any recent purchases you have made and for which you feel that a similar rationale seemed to be at work.
Explanation / Answer
Here,the consumer was ready to pay $200, but when he reaced the tailor shop and show the posted price is $150. It means the consumer surplus is $50 ($200 -$150). Because the definition of consumer surplus is that the difference betweenhow much the consumer is willing to pay and how much acctually he/she pays.
Similarly, the tailor was prepared to sell at $100, and he posted the price as $150, and found the customer paid the posted price.It means the producer surplus is $50 ($150 -$100). Because the definition of producer surplus is that the difference between at what price the seller was ready to sell and actually at what price he/she sells.
The simillar situation comes happens many times in life of every consumer and producer. Recently, i had gone to a readymade cloth store to purchase my college uniform. six month back i had purchases the uniform at $500. And now when went to the shop and keeping in mind that the price will be $500 or more and accordingly was ready to pay $500 or little more. But when i reached the shop, the shopkeeper quote the same uniform at $475. So, it means i got a consumer surplus of $25 in the purchase.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.