Joe tells of the following story I bought a couple of rare c

Joe tells of the following story: \"I bought a couple of rare compact discs for $5 each from a local flea market. The guy obviously didn\'t know what they were worth as it was priced the same as his other discs. I actually told him that they are worth a lot more than what he was asking. I don\'t know if he thought I was messing with him but he snarkily replied: \'Mate, you\'re welcome to pay me more if you want to.\'\" What economic idea do you think Joe is getting at here, relating to how he ends up paying less than the compact disc is worth to him? If Joe actually ended up paying more for the compact discs, do you think his actions would be consistent with our principle of maximization? Explain.

Solution

Joe is getting here the idea of consumer surplus, as he ends up paying less than the compact disc that is worth to him.