Exhibit 5-3

Refer to Exhibit 5-3 which shows the demand and supply of a college athlete. Suppose that NCAA rules limit the amount that the college can pay this athlete, such that their payment can not exceed the cost of attending the college (currently $8,000). The impact of this ruling would be a loss of income to the athlete of __________ and an equal gain in consumers' surplus to the college represented by ________________.

Question

Exhibit 5-3

Refer to Exhibit 5-3 which shows the demand and supply of a college athlete.  Suppose that NCAA rules limit the amount that the college can pay this athlete, such that their payment can not exceed the cost of attending the college (currently $8,000).  The impact of this ruling would be a loss of income to the athlete of __________ and an equal gain in consumers' surplus to the college represented by ________________.

Quizplus · Accepted Answer

With the NCAA rule in place, the athlete can only receive a maximum of $8,000 in payment, which means their income will decrease from $10,000 to $8,000, resulting in a loss of income of $2,000. The consumers' surplus gained by the college will be represented by Area 2, which is the difference between the price received ($8,000) and the supply curve at the equilibrium quantity ($6,000), or $2,000. Therefore, the correct answer is A.

Exhibit 5-3 Refer to Exhibit 5-3 Which Shows the Demand and Supply