Question

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 $480, your first friend is willing to pay $450, your second friend is willing to pay $560, and your third friend is willing to pay $510. The landlord agrees to offer each of you separate leases but will charge you all the same price: $450.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 $400 per month.Part 1:What is the amount of producer surplus per month?PART 2:What is the amount of total consumer surplus per month?PART3:What is the amount of total surplus each month?

Answer 1

$200

$200

$400

Step-by-step explanation:

Producer surplus is the difference between the price of a product and the least price the seller is willing to sell his product.

Producer surplus = price of the product - least price the producer is willing to sell his product

$450 - $400 = $50

Because there are four people , $50 × 4 = $200

Consumer surplus is the difference between the willingness to pay of a consumer and the price of the product.

My consumer surplus = $480 - $450 = $30

Ist friend = $450 - $450 = 0

2nd friend = $560 - $450 = $110

3rd friend = $510 - $450 = $60

Total surplus = $30 + $110 + $60 = $200

Total surplus is the sum of producer and consumer surplus.

$200 + $200 = $400

I hope my answer helps you