Fred truthfully tells a car dealer that the maximum amount he is willing to pay for a Ford Mustang is $20,000.The dealer says,"You're lucky; we have only one left on the lot for $20,000." Which of the following statements is true?
A)Fred gets a consumer surplus of $15,000.
B)Fred and the dealer get a consumer surplus of $10,000 each.
C)Fred gets a consumer surplus of $20,000.
D)Fred gets no consumer surplus.
E)The dealer earns a consumer surplus of $20,000.

Question

Quizplus · Accepted Answer

Fred gets no consumer surplus because he was willing to pay exactly the amount that the dealer was selling the Mustang for. Consumer surplus is calculated by subtracting the price paid from the maximum amount a consumer is willing to pay, but in this case, those two values are the same.

Fred Truthfully Tells a Car Dealer That the Maximum Amount