Suppose you are planning to sell your house. You value your house at $150,000. If you do not hire a realtor, you will be able to sell your house to a buyer whose reservation price is $180,000. If you hire a realtor, you will be able to sell your house to a buyer whose reservation price is $200,000. Assume that the realtor's opportunity cost of negotiating the sale is $10,000. In this case, does using a realtor to sell your house increase total economic surplus?
A)No, because you value the house at $150,000 no matter who buys it.
B)No, because your house only generated economic surplus when it was first built.
C)It depends on the sales price of the house, which isn't given in the question.
D)Yes, using a realtor increases total economic surplus by $10,000.

Question

Quizplus · Accepted Answer

If you do not use a realtor, total economic surplus from the sale of your house will be $30,000 ( = $180,000 - $150,000). If you use a realtor, total economic surplus will be $40,000 ( = $200,000 - $150,000 - $10,000). Thus, using a realtor increases total economic surplus by $10,000.

Suppose You Are Planning to Sell Your House