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

Before the tax, the total surplus is the sum of the consumer surplus and the producer surplus. 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