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2 January, 07:25

Suppose that there are three identical vases available to be purchased. Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one. If the price is $25, how many vases will be sold and what is the value of the consumer surplus in this market

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  1. 2 January, 10:03
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    Two vases will be sold.

    The value of consumer surplus is $5.

    Explanation:

    There are three identical vases available to be purchased.

    Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one.

    The price is $25.

    Buyer 1 and buyer 2 will purchase the vase as they are willing to pay more than the price. Buyer 3 is not willing to pay the price.

    So, only two vases will be sold.

    The consumer surplus is the difference between the price a consumer is willing to pa and the price he actually pays.

    The consumer surplus

    = ($30-$25) + ($25-$25)

    = $5 + $0

    = $5
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