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Bae is willing to pay up to $160 for a particular pair of boots. She is able to buy the boots for $120. The marginal cost of producing the boots is $70.

How large is the economic surplus associated with her purchase of the boots?

Answer :

Final answer:

The economic surplus from Bae's purchase of the boots is $90, calculated by adding the consumer surplus of $40 and the producer surplus of $50.

Explanation:

In economics, an economic surplus is a measure of economic benefit. It's defined as the difference between what a consumer is willing to pay for a good and what they actually pay for it. In Bae's case, she is willing to pay $160 for the boots but purchases them for $120, so the consumer surplus is $160 - $120 = $40.

The producer surplus is the difference between the actual amount the producer of the boots receives and the minimum amount they would be willing to accept (the marginal cost). So in this case, the producer surplus is $120 (the price the boots were sold for) - $70 (marginal cost of production) = $50.

The total economic surplus is the sum of the consumer surplus and the producer surplus. Thus, in this case, the economic surplus related to the sale of these boots would be $40 (consumer surplus) + $50 (producer surplus) = $90.

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