Asked by Stephine Browning on Jul 09, 2024
Verified
Alex is willing to buy the last ticket to the Billy Bragg concert for $15,while Jake is willing to pay $25.Alex is first in line and buys a ticket for $15.He then resells his ticket to Jake for $20.By reselling the ticket instead of going to the concert himself,Alex caused:
A) the sum of the consumer and producer surplus to increase.
B) the sum of the consumer and producer surplus to decrease.
C) a deadweight loss of $5.
D) consumer surplus to decrease and producer surplus to increase.
Consumer Surplus
The differential between the overall amount consumers are willing and financially prepared to spend on a good or service, and what they end up spending.
Producer Surplus
The difference between what producers are willing to accept for a good versus what they actually receive, essentially the extra benefit to producers from selling at the market price.
Deadweight Loss
A loss of economic efficiency that occurs when the equilibrium for a good or a service is not achieved or is unobtainable.
- Examine the impact of price fluctuations on consumer surplus and overall market surplus.
- Identify the prerequisites for market efficiency and understand the consequences of deviations from equilibrium.
Verified Answer
BU
Brian UthayakumarJul 14, 2024
Final Answer :
A
Explanation :
By reselling the ticket to Jake for $20, Alex has created a benefit for both himself and Jake. Jake was willing to pay up to $25 for the ticket, so he gains a surplus of $5 by purchasing it from Alex for $20. Alex gains a surplus of $5 by selling the ticket for more than he paid for it. Therefore, the total surplus (consumer and producer) has increased by $10 ($5 for Jake and $5 for Alex). Therefore, choice A is the correct answer.
Learning Objectives
- Examine the impact of price fluctuations on consumer surplus and overall market surplus.
- Identify the prerequisites for market efficiency and understand the consequences of deviations from equilibrium.