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Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00 and $4.15 per pair. What is the total producer and consumer surplus (i.e., social welfare) in this market?A) $23.40 B) $7.10 C) $1.85 D) $5.25

Respuesta :

Answer and Explanation:

The computation of the producer surplus and the consumer surplus is shown below:

The consumer surplus for Jeff is

= Willing to pay - current price

= $7.25 - $5

= $2.25

The consumer surplus for samir is

= Willing to pay - current price

= $8 - $5

= $3

So, the total consumer surplus is

= $2.25 + $3

= $5.25

Now the producer surplus for one producer

= Market price - willing to sell

= $5 - $4

= $1

The producer surplus for another producer

Market price - willing to sell

= $5 - $4.15

= $0.85

So, the total producer surplus is

= $1 + $0.85

=$1.85

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