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10 July, 16:20

Andrew paid $30 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet. He was willing to pay $45. When Andrew's friend Nick learns that Andrew bought a potato cannon, he asks Andrew if he will sell it for $60, and Andrew agrees, since he would have sold it for $45. Nick is thrilled, since he would have paid Andrew up to $80 for the cannon. Andrew is also delighted. What is the total surplus generated from Andrew's sale to Nick?

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  1. 10 July, 17:21
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    The total surplus from Andrew's sale to Nick is $35.

    Explanation:

    The total surplus is the sum of producer surplus and consumer surplus.

    The consumer surplus is the difference between the maximum price a consumer is willing to pay for a product and the price he/she actually has to pay.

    While producer surplus is the difference between the minimum price a producer is willing to accept for a product and the price he/she actually gets.

    Consumer surplus for Nick

    = $80 - $60

    = $20

    Producer surplus for Andrew

    = $60 - $45

    = $15

    Total surplus from generated from Andrew's sale to Nick

    = $20 + $15

    = $35
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