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Teaching Resources
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EconActive Solutions (CNN News Questions)
Chapter 7: Cigars: sd2m02v1
- Is willingness to pay a premium price for cigars necessarily a good measure of the consumer surplus of the buyers?
- In the cigar market, which do you think is larger, consumer or producer surplus and why?
Answers:
- Since there are health risks associated with smoking, willingness to pay is not a particularly good measure of benefits from consuming cigars. Some of the perceived benefits may be offset by the cost of health problems.
- Since cigars are selling for high prices, producer surplus (the difference between cost and price) is probably larger than consumer surplus.
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