Grace purchases paint supplies from Olivia.

Grace's is willing-to-pay is $3,447.
Olivia's willingness-to-sell is $1,259.

If they agree to a price of $1,823 for the paint supplies then what is Olivia's surplus? (Omit the dollar sign from your answer.)

Note: There is a bug in Canvas that sometimes reports numerical questions as "unanswered". Do not be concerned so long as you have entered an answer.

Question

Grace purchases paint supplies from Olivia.

Grace's is willing-to-pay is $3,447.
Olivia's willingness-to-sell is $1,259.

If they agree to a price of $1,823 for the paint supplies then what is Olivia's surplus? (Omit the dollar sign from your answer.)

Note: There is a bug in Canvas that sometimes reports numerical questions as "unanswered". Do not be concerned so long as you have entered an answer.

BlackTom AI · Accepted Answer

Producer surplus equals the transaction price minus the seller’s minimum acceptable price (willingness-to-sell). This measures how much the seller gains from selling at the agreed price above their reservation price.

Step-by-step reasoning:
1. Identify the seller’s willingness-to-sell: 1,259.
2. Identify the agreed transaction price: 1,823.
3. Compute Olivia’s surplus as price received − willingness-to-sell:
   - 1,823 − 1,259
   - Subtract the hundreds: 1,800 − 1,200 = 600
   - Subtract the remaining: 23 − 59 = −36, combine with 600 gives 564
   - Or do the full subtraction: 1823 − 1259 = 564

All intermediate arithmetic: 1823 − 1259 = (1823 − 1200) − 59 = 623 − 59 = 564.

Why this is correct: The seller would have been willing to accept as little as 1,259 for the paint supplies. Receiving 1,823 means Olivia receives 564 more than her minimum acceptable amount, so her producer surplus is 564. This is a standard definition in welfare economics: producer surplus = actual price − seller’s reservation price.

Common incorrect answers and why they are wrong:
- 1,624 (which is 3,447 − 1,823) is Grace’s consumer surplus, not Olivia’s producer surplus.
- 1,259 or 1,823 are simply the reservation price or transaction price, not the surplus (they are inputs, not the difference).
- Any negative value would imply selling below reservation price, which is not the case here.

Conclusion: Olivia’s surplus = 564, which matches the provided correct answer.

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