ECON 103, Spring 2009 Simon Fraser University Assignment 2 Answers Question 1 (4 marks) Explain clearly why we have to subtract TV from TR in order to calculate seller’s surplus. Seller’s surplus measures by how much the seller is better oﬀ after trade . Or in other words, seller’s surplus is the seller’s gains from trade. True that after trade Darlene has 1.50 in revenue, but now she does not have the eggs, the value of which are represented by her TV. If she did not trade she would still have the eggs which have values for her. That is why to calculate by how much she is better oﬀ we need to subtract TV from the total revenue. Alternatively Darlene’s TV of the eggs that she sold measures the the minimum payment she would accept for her eggs (which would leave her indiﬀerent between trade/no trade) and anything on top of that is her surplus - the revenue in the excess of the minimum acceptable payment. Question 2
This is the end of the preview. Sign up
access the rest of the document.
This note was uploaded on 09/13/2009 for the course ECONOMICS Econ 103 taught by Professor Iryina during the Spring '09 term at Simon Fraser.