Lou buys an Iron Man 2 poster 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 undersold 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

Statement B is false. It assumes that Evan had a predetermined value for the poster that was higher than $30. However, it is possible that Evan was willing to sell the poster for $30, so he may not necessarily be worse off. The other statements are all true or possible. Lou may have incurred costs for packaging and shipping the poster, so statement C is likely true. Additionally, it is possible that Evan had a high marginal cost of producing the poster (e.g. he spent a lot of time and effort designing it), so he could have earned some producer surplus even though he sold it for $30. Therefore, statement D is also true or possible. Finally, statement A is true because Lou earned a profit by buying low and selling high.

Lou Buys an Iron Man 2 Poster from Evan for $30