The economic value which can be created by a transaction between two people, Ed (seller) and Luis (buyer), is $50 as Ed's opportunity cost of selling is $135 and Luis' valuation of the good is $185.Suppose Ed and Luis do not speak the same language and Ed hires an interpreter who charges $2 per hour.Ed and Luis finally agree to a price of $160.This implies:
A)Luis' valuation of the good will increase.
B)Ed's opportunity cost will decline.
C)economic value from the transaction will decline.
D)Ed will receive to a lower benefit than Luis.

Question

Quizplus · Accepted Answer

Ed's benefit is $25 ($160 - $135), while Luis' benefit is $25 ($185 - $160). After paying the interpreter $2, Ed's net benefit is $23, which is lower than Luis' benefit of $25.

The Economic Value Which Can Be Created by a Transaction