Assume Felix is willing to par $8 for a Star Trek pizza cutter. Tim also wants one but would only be willing to pay $6 for it.

Question

At a Star Trek convention,Felix manages to buy the last pizza cutter at the market price. In a strange twist of fate, however, the Star Trek fan club announces Tim to be the greatest fan of all time, takes the newly bought pizza cutter from Felix, refunds Felix, and lets Tim buy the cutter for $5. What happens as a result of this move?

a. consumer surplus decreases
b. producer surplus decreases
c. producer surplus increases
d. consumer surplus increases

Answer 1

I think b if surplus is to represent money and not how many pizza cutters they have because they lost $3 if Felix paid $8 for it

Answer 2

a. consumer surplus decreases

Answer 3

a. Consumer surplus decreases