Suppose Bashir is willing to pay \$10 for a unit and Chander is willing to sell the unit for \$6. What is the total economic surplus if Bashir buys a unit from Chander?

• A. 16
• B. 4
• C. 6
• D. 10

Answer: (B)

Verified step by step guidance

1. Identify the willingness to pay (WTP) of the buyer, Bashir, which is the maximum price he is willing to pay for the unit. Here, WTP = \$10.
2. Identify the willingness to sell (WTS) of the seller, Chander, which is the minimum price he is willing to accept to sell the unit. Here, WTS = \$6.
3. Understand that the total economic surplus is the sum of the consumer surplus and the producer surplus generated by the transaction.
4. Calculate the consumer surplus as the difference between the buyer's willingness to pay and the actual price paid. Since the transaction occurs at the seller's willingness to sell (assuming a competitive market), the price is \$6, so consumer surplus = \$10 - \$6.
5. Calculate the producer surplus as the difference between the price received and the seller's willingness to sell. Here, producer surplus = \$6 - \$6 (which is zero if price equals WTS). Then, add consumer surplus and producer surplus to find total economic surplus.