Question

Gabriela is willing to sell a dozen roses for €60, while Matteo is willing to sell a dozen roses for €50. Carlos is willing to buy a dozen roses for €56, while Irina is willing to pay €53. If the market price is €54, how many roses are sold and what is the total (consumer + producer) surplus after the transaction(s)?

a. No roses will be sold, and consequently, the total surplus will be €0.
b. One dozen roses will be sold, and the total surplus will be €6.
c. Two dozen roses will be sold, and the total surplus will be €16.
d. One dozen roses will be sold, and the total surplus will be €10.

The answer is B, could you explain why and how?

Answer 1

The correct answer is **D**, not **B**. Let me explain why and how.

First, let's look at the information provided:

- Gabriela is willing to sell a dozen roses for €60.

- Matteo is willing to sell a dozen roses for €50.

- Carlos is willing to buy a dozen roses for €56.

- Irina is willing to pay €53.

- The market price is €54.

To determine how many roses are sold and the total surplus, we need to compare the prices at which sellers are willing to sell (producer surplus) and the prices at which buyers are willing to buy (consumer surplus).

Here are the relevant prices:

- Producer Surplus:

- Gabriela is willing to sell for €60, but the market price is €54, so her producer surplus is €60 - €54 = €6.

- Matteo is willing to sell for €50, but the market price is €54, so his producer surplus is €54 - €50 = €4.

- Consumer Surplus:

- Carlos is willing to buy for €56, but the market price is €54, so his consumer surplus is €56 - €54 = €2.

- Irina is willing to pay €53, but the market price is €54, so her consumer surplus is €54 - €53 = €1.

Now, let's calculate the total surplus:

Total Surplus = Producer Surplus + Consumer Surplus

Total Surplus = (€6 + €4) + (€2 + €1)

Total Surplus = €10

So, the correct answer is **D**. One dozen roses will be sold, and the total surplus will be €10.