Lou buys a classic Mario Bros.game from Evan for $30 and resells it on eBay for $60.Which of the following statements is false?
A)Lou has earned some arbitrage profits, assuming that transaction costs are negligible.
B)The transaction has made Evan worse off because he underpriced the poster.
C)Lou has probably incurred some costs in connection with this sale.
D)It is possible that Evan has earned some producer surplus from this transaction.

Question

Quizplus · Accepted Answer

It is incorrect to assume that Evan underpriced the poster because the price that he sold it to Lou may have been a fair price for him. Additionally, it is possible that Evan sold the poster to Lou because he wanted to get rid of it or needed the funds for something else, in which case he may not feel worse off from the transaction. The other statements are true: A) Lou earned a profit from the difference in prices, C) Lou likely incurred some costs in selling the poster on eBay, and D) It is possible that Evan earned some producer surplus from the original sale to Lou.

Lou Buys a Classic Mario Bros