Question

Suppose the most you would be willing to pay to have a freshly washed car before going out on a date is 5$ , the smallest amount for which you would be willing to wash someone else car is 3$ , you are going on a date and your car is dirty how much economic surplus will you receive from washing it ?

Round to 2 decimal places

Answer 1

Answer - economic surplus = $2

Reason - economic surplus is basically the excess of what a consumer is willing to pay and what is the least value thats paid. Economic surplus is total of consumer surplus and producer surplus.

But according to the data presented here in question, the maximum that I would be willing to pay is $5 means inspite of whatever I pay for it, it will give me satisfaction of $5. The least willingness to pay is $3 which is the least that would be charged. So the consumer and producer surplus lies in the difference of maximum willingness to pay and the least cost I would be paying i.e $5 - $3 = $2.