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Bethany is looking for a laptop computer. She is willing to pay $590 for it. Suppose...

Bethany is looking for a laptop computer. She is willing to pay $590 for it. Suppose this is the highest price that any potential buyer of such a computer is willing to pay. At the same time, Andrew is willing to sell his laptop, which has all the features that Bethany wants, for $390. Suppose this is the lowest price that any potential seller of such a computer is willing to accept. Bethany and Andrew never meet. Bethany never finds a laptop she wants offered for less than $590, and Andrew sells his laptop for $440 to someone who values it at $500. How much value was created by the transaction that happened? How much value was lost due to inefficiency?

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Answer #1

Value created = Value to Andrew + Value to buyer

Value created = (440-390) + (500-440)

Value created = $110

Value lost from inefficiency = Value lost because of no sale made to Bethany

Value lost = 590-390 - (110)

Value lost = $90

Total inefficiency loss = $90

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