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14th lecture

# 14th lecture - Economics 101 Lecture 14 Example 14.5...

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Economics 101 Lecture 14

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Example 14.5 . Anticipating a high proportion of no-shows, a hair salon manager routinely books five people for each appointment time, even though only three slots are available during each appointment time. One day, all five people show up for 6 p.m. appointments.

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Their respective arrival times and the most each would be willing to pay to avoid postponing his or her appointment : Customer Arrival time Reservation price Ann 5:50 \$6 Bill 5:52 \$11 Carrie 5:55 \$4 Dana 5:56 \$12 Earl 5:59 \$5
Suppose the salon manager accommodates the customers on a first-come-first-served basis. By how much will total economic surplus be smaller than if she had offered cash compensation to induce two volunteers to reschedule?

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Customer Arrival time Reservation price Ann 5:50 \$6 Bill 5:52 \$11 Carrie 5:55 \$4 Dana 5:56 \$12 Earl 5:59 \$5
First-come-first-served means that Ann, Bill, and Carrie get to keep their appointments, which results in a surplus of \$6+\$11+ \$4=\$21. Customer Arrival time Reservation price Ann 5:50 \$6 Bill 5:52 \$11 Carrie 5:55 \$4 Dana 5:56 \$12 Earl 5:59 \$5

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Suppose instead that the three willing to pay most (Dana, Bill, and Ann) had been permitted to keep their appointments. Total surplus would then have been \$12+ \$11+\$6=\$29, or \$8 more than before.
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