Labor Supply & Demand

Discount Surrogacy

Glenn has found a potential surrogate online, but it seems more like he may be interviewing a kidnapper. While he believes he’s interviewing a potential surrogate, he goes through the process of identifying her reservation wage. A reservation wage is the lowest amount that a worker is willing to accept. He mentions that he and his wife only have $20,000, which the surrogate agrees to. He then lowers it to $15,000 and she still is willing to accept it. When he tries to go down to $10,000 she notes that it’s too low. Because Glenn is willing to pay $20,000 for a surrogate, any price below that will result in consumer surplus for his family.