Sammy has a drone that he values at $1,500. Frank values the same drone at $1,000. The government offers a subsidy of $800 to the buyers of drones, and Sammy and Frank agree on a price of $1,600. Producer surplus is ________ and consumer surplus is ________.

Question

Quizplus · Accepted Answer

Producer surplus is the difference between the price Sammy receives ($1,600) and his valuation ($1,500), which is $100. Consumer surplus is the difference between Frank's valuation plus the subsidy ($1,800) and the price he pays ($1,600), which is $200.

Sammy Has a Drone That He Values at $1,500