Grace purchases paint supplies from Olivia.

Grace's is willing-to-pay is $2,525.
Olivia's willingness-to-sell is $1,039.

If they agree to a price of $1,871 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 $2,525.
Olivia's willingness-to-sell is $1,039.

If they agree to a price of $1,871 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 willingness-to-sell, so compute Olivia’s surplus as the price she receives less her minimum acceptable amount.

1) Relevant concepts:
- Willingness-to-pay (WTP): the maximum a buyer (Grace) will pay; here $2,525.
- Willingness-to-sell (WTS): the minimum a seller (Olivia) will accept; here $1,039.
- Producer (seller) surplus: price received − WTS. (Consumer surplus would be WTP − price.)

2) Step-by-step reasoning:
- The agreed transaction price is $1,871.
- Olivia’s WTS is $1,039.
- Olivia’s surplus = transaction price − WTS.

3) Calculations with intermediate steps:
- Start: 1,871 − 1,039
- Subtract thousands/hundreds: 1,871 − 1,000 = 871; then subtract remaining 39: 871 − 39 = 832.
- Alternatively, column subtraction:
  1,871
− 1,039
  -----
    832

4) Why this is correct:
Producer surplus measures the extra amount a seller receives above the minimum they needed to accept the deal. Olivia required at least $1,039 but actually got $1,871, so she gains $832 above her minimum. That is precisely the producer surplus definition and calculation.

5) Why other interpretations would be incorrect:
- Subtracting in the reverse order (WTS − price) would give a negative number and misunderstand the surplus concept.
- Computing consumer surplus (WTP − price = 2,525 − 1,871 = 654) answers a different question (Grace’s surplus, not Olivia’s).
- Any division or percentage operations are irrelevant here.

6) Conclusion:
Olivia’s surplus is 832, which matches the provided answer.

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