Answer:
The question lacks completeness; the following addition would enhance it:
"If Realtors require a 5 percent commission on the sale price and every Realtor faces opportunity costs of $2,000 to negotiate a sale, will Carlos opt to hire a Realtor? If he does, how will the overall economic surplus change?"
The result is that the total economic surplus rose from $20,000 to $248,000.
Explanation:
It is essential to grasp the concepts of marginal cost, marginal benefit, and asymmetric information. Marginal cost refers to the additional cost incurred from utilizing one more unit of a resource, while marginal benefit signifies the advantage gained from that investment. Asymmetric information arises when one side in a transaction possesses more information than the other.
Carlos's reservation price stands at $130,000. He intends to sell for $140,000 to Whitney, whose reservation price is $150,000. Thus, Carlos enjoys a surplus of 140,000 - 130,000 = $10,000, and Whitney has a surplus of 150,000 - 140,000 = $10,000. Consequently, the total economic surplus amounts to $20,000.
Should Carlos enlist a realtor, who charges 5% if the property is sold for $300,000 to someone with a reservation price of $350,000, the surplus would be calculated as:
5% × 300,000 - 2000 = $13,000.
Here, the surplus equals 300,000 - 130,000 + 15,000 = $185,000.
Hence, the buyer's surplus is:
350,000 - 300,000 = $50,000.
Thus, the total economic surplus has increased from $20,000 to $248,000.
