Answer to Question #270802 in Microeconomics for Anna

Question

Chris has an autographed copy of a Nat King Cole album that he values at $100. If he sells the album at a garage sale it will be sold to a buyer with a reservation price of $175. If he sells it on eBay it will be sold to a buyer with a reservation price of $500. eBay will charge Chris $50 to auction the album. Compared to selling the album at a garage sale, auctioning the album on eBay will lead to:

A. no change in total economic surplus.

B. total economic surplus to increase by $500.

C. total economic surplus to increase by $275.

D. total economic surplus to increase by $100.

 

Answer 1

Solution: 

The correct answer is C. total economic surplus to increase by $275.

Garage sale = 175

Auctioning the album on eBay = 500 – 50 = 450

Total economic surplus = 450 – 175 = $275