4. Consider a simple opportunity for trade: You are renting a new condo and the previous tenant offers to sell her old couch. You are the sole buyer and you have a willingness to pay of $200. The previous tenant is the sole seller and has a willingness to accept of $120.

a. Regardless of what price you and the previous tenant agree to, what is the social surplus, assuming you are able to come to some sort of mutually beneficial agreement?

b. Suppose the condo association imposes a $50 fee (i.e., a tax) for each item left in the condo during the movein/move-out. Will you still be able to reach an agreement? What is the effect on social surplus?

c. Suppose the fee were raised to $100. What would be the effect on social surplus? In other words, what is the deadweight loss of this new policy?