Question

Determine the amount of producer surplus [PS] generated in each of the following situations: a. Jack lists his old electric train set on eBay. He sets a minimum acceptable price, known as the reserve price, of $95. After five days of bidding, the final high bid is exactly $95. He accepts the bid. b. Angelina advertises her car for sale in the used-car section of the student newspaper for $2,000, but she is willing to sell the car for any price higher than $1,500. The best offer she gets is $1,800, which she accepts. c. Sanjay likes his social work job so much he would be willing to do it for free. However, his annual salary is $50,000.

Answer 1

Producer surplus is calculated as the selling price minus the seller's cost. In the scenarios, Jack has a producer surplus of $0, Angelina has $300, and Sanjay has $50,000. Market conditions like price ceilings or floors can affect surplus levels.

Step-by-step explanation:

Producer surplus is the amount that a seller is paid for a good minus the seller's actual cost of providing it. Here are the calculations for the producer surplus in the given scenarios:

a. $95 - Jack did not receive any surplus because the final bid was exactly his reserve price.

b. $300 (=$1,800 - $1,500) - Angelina received a surplus because she was willing to sell the car for $1,500 but received $1,800.

c. $50,000 - Sanjay received a large surplus because he was willing to do the job for free, but he earned a salary of $50,000.

Note that producer surplus can be affected by market conditions such as price ceilings or price floors, which alter the equilibrium and can result in different levels of surplus for consumers and producers,