Opel Ve menu Economists often simplity economic models by ignoring the role that transaction costs play in decision making. Purchasing a good often involves explicit transaction costs, such as the cost of the line used to get to the store, but there are also implicit transaction costs such as the opportunity cost of the time spent shopping for and acquiring a product. The remaining questions will help you understand the importance of transaction costs Suppose Janet values consuming her first Double Stack burger at $3.00, and she places no value on any additional burgers. Based on Janet's Willingness to pay, her demand curveis plotted on the following graph. Por simplicity, assume there is no time cost of waiting in line for her first Double Stack burger, Using the green rectangle (triangle symbols), shade the areas representing Janet's consumer supus from purchasing a burger under these conditions on the following graph Consumer Demand PRICE De burger Price QUANTITY (Double Stack burgers Suppose Janet just sat down to enjoy the Double Stack burger that she purchased for $1.00. Her friend, Felix, would also like a Double Stack burger but he strongly dislikes standing in line. Felex offers to buy Janet's Double Stack rather than wait in line himself and pay $1.00 The following table shows some hypothetical offers Felix might make for Janet's burger Suppose Janet just sat down to enjoy the Double Stack burger that she purchased for $1.00. Her friend, Felix, would also like a Double Stack burger but he strongly dislikes standing in line. Felix offers to buy Janet's Double Stack rather than wait in line himself and pay $1.00. The following table shows some hypothetical offers Felix might make for Janet's burger, First, compute the consumer surplus Janet gets from buying the burger for $1.00, refusing Felix's offers, and eating the burger. Enter these amounts in the second column of the following table. Next, compute the consumer surplus she gets from buying the first burger at $1.00, selling it to Felix at each price sted, purchasing another burger for $1.00, and consuming it. Enter these amounts in the third column of the cable. Again, assume that Janet's cost of waiting in line for a burger is zero Note: 1 Janet is willing to sell her burger to Felix while at the Wendy's restaurant, she would purchase another burger immediately, since the value of the burger ($2,00) remains higher than the price of the burger ($1.00) Janet's Consumer Surplus from ... Purchasing and Consuming Immediately Purchasing, Selling, Purchasing Again, Then Consuming Offer Price from Friend (Dollars) (Dollars) $1.50 $2.00 $2.50 Assuming her cost of waiting in tine is zero, what's the lowest of the offers listed in the prior table that Janet would accept in exchange for her burger? O $1.50 O $2.00 $2.50 Now relax the assumption that Janet's cost of waiting for a Double Stack is zero. Specifically, Janet values cach minute of her time at $0.25 and Suppose the wait for a Double Stack is two minutes. Induding the value of her time, the cost of obtaining a burger for Janet is her consumer surplus from purchasing and consuming a burger is in the second column of the following table. Next, compute the consumer SupIUS cach price listed, purchasing another burger for $1.00, and consuming it. Enter these amounts in the third column of the table. Again, assume that Janet's cost of waiting in line for a burger is zero. Note: If Janet is willing to sell her burger to Felix while at the Wendy's restaurant, she would purchase another burger immediately, since the value of the burger ($3.00) remains higher than the price of the burger ($1,00) Janet's Consumer Surplus from ... Purchasing and Consuming Immediately Purchasing, Selling, Purchasing Again, Then Consuming Offer Price from Friend (Dollars) (Dollars) $1.50 $2.00 $2.50 Assuming her cost of waiting in line is zero, what's the lowest of the offers listed in the prior table that Janet would accept in exchange for her burger? $1.50 $2.00 O $2,50 Now relax the assumption that Janet's cost of waiting for a Double Stack is zero. Specifically, Janet values each minute of her time at 50.25 and Suppose the wait for a Double Stack is two minutes. Including the value of her time, the cost of obtaining a burger for Janet is her consumer surplus from purchasing and consuming a burger iss of the following prices, what's the lowest price she would accept from Felix in exchange for her burger? $1.25 $1.75 $2.25 52.75 From the previous analysis, you can conclude that the minimum price at which Janet is willing to sell her Double Stack burger to Felix the shorter her wait in line