Refer to the definitions of Consumer and Producer Surplus Co

Refer to the definitions of Consumer and Producer Surplus. Consider and discuss the process of buying a new car by(briefly) relating to your own personal/family( past) experiences. Do most car buyers always pay the \"sticker prices\"(or \"MSRP\") ? Why or why not? In general, car buyers are not always willing to pay the same price for the same models of cars. So,what determines the prices they actually pay? Are sellers always willing to lower their prices? In other words,how do the negotiations between the car buyers and the car dealers(sellers) affect Consumer or Producer surplus? Do any of your group members share similar experiences?

Solution

No, it has been observed that most car buyers do not pay the sticker price because they like to bargain to a lower price in order to increase their consumer surplus. The willingness to pay for a car determines determines the prices actually paid for the car. It depends on the features of the car the price which a consumer ultimately pays for the car. Sellers are not willing to lower their prices as it will reduce their profits but in case of increasing their sales they quote a minimum price to their buyers below which they will not sell their product. Negotiations between buyers and sellers increases one surplus at the cost of reducing other surplus. If consumer surplus increases then producer surplus will fall and if producer surplus increases then consumer surplus will decrease. however, total surplus of the economy will remain constant.