Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

Question

Quizplus · Accepted Answer

The total surplus is the sum of consumer surplus and producer surplus. Before the tax, Charles's consumer surplus is $20 ($100 value - $80 price), and Diana's producer surplus is $5 ($80 price - $75 cost). Therefore, the total surplus is $25 ($20 + $5).

Diana Is a Personal Trainer Whose Client Charles Pays $80