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For the following scenario, calculate the surplus and indicate if it is a producer surplus or a consumer surplus
For the following scenario, calculate the surplus and indicate if it is a producer surplus or a consumer surplus. Alice is willing to spend $30 on a pair of jeans, and has a coupon for $10 off she found online. She selects and purchases a $35 pair of jeans, pre-discount.
Alice's
a) consumer
b) producer
surplus:
Expert Solution
Consumer surplus is the difference between the amount of money a consumer is willing to pay to buy a certain amount of goods and the amount actually paid. Producer surplus, on the other hand, is the difference between the amount of money a producer obtains from the sale of a certain amount of goods and the amount of money that a producer is willing to obtain to produce the same amount of goods.
In this case, Alice is a consumer and she is willing to spend $30.
She purchases a $35, but she actually pays $25 since she has a coupon for $10 off (35-10=25).
The difference is 30-25=5 dollars. So, the consumer surplus is $5.
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