Suppose you are planning to sell your house. You value your house at $200,000. If you do not hire a realtor, you will be able to sell your house to a buyer whose reservation price is $220,000. If you hire a realtor, you will be able to sell your house to a buyer whose reservation price is $250,000. Assume that the realtor's opportunity cost of negotiating the sale is $5,000. In this case, how much additional economic surplus is generated by using a realtor to sell your house?
A)None, because you value the house at $200,000 no matter who buys it.
B)$250,000.
C)$200,000.
D)$25,000.

Question

Quizplus · Accepted Answer

If you do not use a realtor, total economic surplus from the sale of your house will be $20,000 (= $220,000 - $200,000). If you use a realtor, total economic surplus will be $45,000 (= $250,000 - $200,000 - $5,000). Thus, using a realtor increases total economic surplus by $25,000.

Suppose You Are Planning to Sell Your House