Jim is haggling with a car dealer on the price of a used car. during the bargaining, Jim discovers that the car has a significant number of scratches which he had not noticed before. The total surplus from the sales has:

a. Increased

b. Decreased

c. Was not affected

d. All of the above

B. Decreased

Explanation:

The surplus sales of the car has to reduce because the customer has to consider and bear in mind the amount of repairs to be done to the car during the transaction process. The car has lots of scratches which will need repairs which will be taken into account by the customer. The customer will have to pay less thereby lowering the surplus from the sales.

c. Was not affected

Explanation:

the question is demanding the effect of the jim's discovery on the the total surplus from the sales

now,

Total Surplus = Producer Surplus + Consumer Surplus

Jim's discovery will make the dealer reduce the price of the car

if the dealer reduces the price, the producer surplus is reduced

while the consumer surplus is increased

reduction in PS leads to increase in CS

hence, the overall effect on the Total Surplus is the same

hence c. is the correct option