Question

The tables below show the reservation values of buyers and sellers in the market for used iPhones Reservation Value Buyer ervation Value Madeline 70 Tom Mary Sean Matt 10 Suppose the minimum price is given as $55 (a "price floor"). Which of the following statements is true in the market for used iPhones? OA. Sean and Dave will each be willing to buy an iPhone ув Madeline and Katie will each be willing to buy an iPhone C. Dave and lan will each be willing to buy an iPhone. O D. Kim and Ty will each be willing to buy an iPhone At a price of $55 per iPhone, the consumer surplus is

Answer 1

A buyer buys a good when his or her reservation price is greater than or equal to the price of good.

The minimum price of iPhone is $55.

The reservation price of Madeline and Katie is greater than the price of iPhone.

So,

Madeline and Katie will each be willing to buy a iPhone.

Hence, the correct answer is the option (B).

Calculate the Consumer Surplus -

Consumer surplus = Reservation value of Madeline + Reservation value of Katie - (2 * Price of iPhone)

Consumer surplus = $70 + $60 - (2*$55)

Consumer surplus = $130 - $110 = $20

So,

At a price of $55 per iPhone, the consumer surplus is $20.