Tim values treats for his dog at 10 per box and John values

Tim values treats for his dog at $10 per box, and John values them at $6 per box. If the price of dog treats is $3 per box but only one box is available between these two buyers, then gains from trade will be maximized when:

Select one:

a. John buys the treats.

b. Tim buys the treats.

c. consumer surplus is equal to $3.

d. either buys the treats, since they both value them more than the market price.

Solution

The gains from the trade will be maximized only when Tim buys the treat. When Tim buys the consumer surplus will be $7 and if Jon buys it will be only $3 which is less than Tim\'s surplus.

The answer is \"B\". Tim buys the treats.