Define "reservation values." If a buyer of a product has a reservation value of $10, the seller of the product has a reservation value of $3, and the equilibrium price of the product is determined at $5,
calculate the consumer surplus and the producer surplus.
A reservation value is the price at which a trading partner is indifferent between making the trade and not doing so. For a buyer, this is the highest price he is willing to pay for a good or service. For a seller, it is the lowest price he is willing to accept for a good or service.
Consumer surplus = $10 - $5 = $5
Producer surplus = $5 - $3 = $2
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