Diana is a personal trainer whose client Charles pays $80 per hour-long session.Charles values this service at $100 per hour,while the opportunity cost of Diana's time is $75 per hour.The government places a tax of $10 per hour on personal trainers.Before the tax,what is the total surplus?
A)$25
B)$20
C)$5
D)$0

Question

Quizplus · Accepted Answer

The total surplus is the sum of consumer surplus and producer surplus. Before the tax, Charles values the service at $100 and pays $80, so his consumer surplus is $20. Diana's opportunity cost is $75, and she receives $80, so her producer surplus is $5. Therefore, the total surplus is $20 + $5 = $25.

Diana Is a Personal Trainer Whose Client Charles Pays $80