Question

Think about your decision to buy the textbook for this course. You paid $250 for the book, but you would have been willing to pay $500 to use the book for the semester. Suppose that at the end of the semester you could keep your textbook or sell it back to the bookstore. Once you have completed the course, the book is worth only $90 to you. The bookstore will pay you 50% of the original $250.

Required:
How much total value have you gained?

Answer 1

$285

Step-by-step explanation:

the total value is the total surplus i gained from this transaction

total surplus is the sum of producer and consumer surplus.

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

Consumer surplus = willingness to pay – price of the good

$500 - $250 = $250

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

Producer surplus = price – least price the seller is willing to accept

(0.5 x $250) - $90 = $35

total surplus = $250 + $35 = $285