Question

In Chapter 1, you learned that buying and selling textbooks are two separate decisions made at the margin. Textbooks create value both when they are bought and when they are sold. Think about your decision to buy the textbook for this course. You paid $225 for the book, but you would have been willing to pay $450 to use the book for the semester.Suppose that at the end of the semester you could keep your textbook or sell it back to the bookstore. Once you have completed the course, the book is worth only $70 to you. The bookstore will pay you 50% of the original $225. How much total value have you gained?$

Answer 1

Answer - Total value gained - $267.5

Reason -

At the beginning of the semester in gained $225 in value.

At the end of the semester I gained $42.5

At the beginning of the semester, I actually paid $225 per book while i could have paid $450 for the book.

The difference between these values represent the consumer surplus.

Consumer surplus is defined as the difference between what a consumer is willing to pay and what he actually pays for a product or service.

At the beginning of the semester I had a consumer surplus of $225

At the end of the semester, the book is worth only $70 to me, but the book store will pay $112.5 for the same book. ( 50% of 225)

So, I gain $42.5 by selling the book to the bookstore at the end of the year.

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