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22 July, 08:40

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. s., social welfare) in this market

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  1. 22 July, 09:03
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    The total producer and consumer surplus is $1.85 and $5.25 respectively

    Explanation:

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

    Producer surplus = Market price - Actual amount to sell the goods

    For Jeff, The producer surplus = $5 - $4 = $1

    For Samir, The producer surplus = $5 - $4.15 = $0.85

    So, the total producer surplus = $1 + $0.85 = $1.85

    And, the consumer surplus = Willing to pay - Market price

    For Jeff, The producer surplus = $7.25 - $5 = $2.25

    For Samir, The producer surplus = $8 - $5 = $3

    So, the total producer surplus = $2.25 + $3 = $5.25
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