A ticket broker purchases two tickets to an upcoming concert for $30 each, although the original ticket holder would have been willing to sell each ticket for $10. The ticket broker later sells the tickets to a new buyer for $50 each. If the new buyer would have been willing to pay up to $90 for each ticket, what fraction of the total value created is captured by the broker? 2/9 1/4 5/9 5/8

The correct answer is 1/4.

Explanation:

The value captured in the market is defined as the surplus earned in the economy. It is computed by subtracting the price of a product from the consumer's willingness to pay. Value captured in the market can be in the form of producer surplus or consumer surplus .

From the question we can deduce that total value captured in the market is $80. As the price of tickets is $10, consumers are willing to pay $90 for them. The value captured by the broker is $(50 - 30) = $20. This is because the broker bought the tickets for $30 each and sold them for $50 each.  

The fraction of value captured by the broker = value captured by broker / total value captured in the market

= 20 / 80

= 1/4