Suppose that the price of a new bicycle is R3 000. Natalie values a new bicycle at R4 000. It costs R2 000 for the seller to produce the new bicycle. What is the value of total surplus if Natalie buys a new bike?

Question

Quizplus · Accepted Answer

Total surplus is equal to the consumer surplus plus the producer surplus. Consumer surplus is the difference between the value that Natalie places on the bike (R4 000) and the price she pays (R3 000), which is R1 000. Producer surplus is the difference between the price the seller receives (R3 000) and the cost to produce the bike (R2 000), which is also R1 000. Therefore, the total surplus is R1 000 + R1 000 = R2 000.

Suppose That the Price of a New Bicycle Is R3