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15 March, 11:40

Nick wants to buy a box of crackers for $1.75. Cracker producers want to sell their product for $1.25. When Nick gets to the store, he finds that the crackers he wants to buy are marked $1.68. What is the total surplus generated from this transaction?

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  1. 15 March, 13:23
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    Total surplus will be $0.50

    Explanation:

    We have given consumer maximum payable amount = $1.75

    Producers minimum amount to receive = $1.25

    Price paid = $1.68

    We have to find the total surplus

    Total surplus will be equal to

    Total surplus = consumer surplus + producer surplus

    Consumer surplus = consumer maximum amount willing to pay - amount paid = $1.75-$1.68 = $0.07

    Producer surplus = price received - producer minimum willingness to pay = $1.68 - $1.25 = $0.43

    So total surplus = $0.07+$0.43 = $0.50
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