The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook.

-Refer to the table above.If the market is perfectly competitive,what is Buyer 3's consumer surplus?
A) $0
B) −$1
C) $1
D) $2

Question

The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook.
 
-Refer to the table above.If the market is perfectly competitive,what is Buyer 3's consumer surplus?
A) $0 
B) −$1 
C) $1 
D) $2

Quizplus · Accepted Answer

Buyer 3's reservation value is $7, and the equilibrium price in the market is $8. Therefore, Buyer 3 pays $8 for the notebook, which means their consumer surplus is their reservation value minus the price they paid: $7 - $8 = -$1. However, negative consumer surplus does not make economic sense, so we take the absolute value and it becomes $1.

The Following Table Displays the Reservation Values of Buyers and Sellers