Economics is Everywhere, 3rd Edition
Daniel S. Hamermesh
Please choose one out of three topics below and write a two page essay (minimum) on the question asked by the author. Your answer should demonstrate your ability to apply the concepts learned in our class. Text should be typed double-spaced, using 12-point font size, with 1” margins (top, bottom, sides). The text should be 500 pages in length (not including the title page, if any).
In the movie Pretty Woman, Richard Gere and Julia Roberts are bargaining over the price of her “services” for a week. They settle on a price of $3,000. She informs him that she would have stayed for $2,000––implicitly she obtains a producer surplus of $1,000, the excess of what she receives over the lowest price for which she would have provided the services. Richard Gere then goes on to say that he would have paid her $4,000. He is getting $1,000 in consumer surplus–– the price he has to pay is $1,000 less than the highest amount he was willing to pay.
Q. What is the consumer surplus if Richard Gere had been willing to pay only $3,500? Would the movie have been made if he had been willing to pay only $2,500?