(Related to Solved Problem 16.1 on page 541) In 2016 , Walmart closed 150 stores in the United States and deeply discounted the merchandise in them. Some people bought the merchandise at these low prices and resold it on Amazon, eBay, and other sites. An article in the Wall Street Journal described one reseller who "sent three employees in a 26 -foot truck to the nearest closing Walmart, about 160 miles south. ... They hauled off \(\$ 35,000\) in merchandise, like Legos and Star Wars pajamas, which he said he expects to sell for as much as \(\$ 100,000\) on Amazon." a. Is the reseller making a \(\$ 65,000\) profit on these goods? Briefly explain. b. Is the reseller exploiting the people who buy these goods from him on Amazon? Briefly explain.

To demystify the calculation of profit, we start with revenue, which in this case is the amount the reseller expects to make from selling the merchandise, namely \(\$100,000\). To figure out the profit, however, we need to deduct all the associated costs from this revenue. These costs are not limited to the initial spending on the inventory; rather, they encompass every additional expense directly involved with the procurement and sale of the goods. This includes the cost of the transportation, storage, employee salaries, and sales platform fees.

Opportunity cost also comes into play. It represents the potential gain from an alternative decision the reseller could have made with their initial investment. For instance, if instead of buying Walmart's merchandise, the reseller could have invested the \(\$35,000\) in the stock market and gotten a 10% return, the opportunity cost would be \(\$3,500\), which should be considered when calculating the actual economic profit.

Therefore, while the reseller’s gross profit seems to be \(\$65,000\), the true economic profit is the revenue minus all explicit costs and the opportunity cost. It is this figure that provides an accurate measure of the profitability of the endeavor.

Opportunity cost is a fundamental concept in economics that involves considering the value of the next best alternative when making a decision. By choosing to engage in one activity, an individual inherently forgoes the opportunity to undertake another potentially beneficial activity.

For the reseller in question, the opportunity cost isn't purely a financial figure; it can encompass time, effort, and other resources that could have been allocated elsewhere. If he had used the truck for a different venture or if the employees were redirected to another project that potentially could yield more profit, these missed opportunities translate into opportunity costs.

It's essential for students to realize that opportunity cost is not recorded in the financial books but is critical for making informed and efficient economic decisions. By understanding and utilizing the concept of opportunity cost, businesses and individuals can better assess the relative profitability of their actions and allocate resources in a way that maximizes their overall gains.

Turning to the ethics of market exploitation, it requires delving into the morality of capitalizing on market opportunities. When a reseller takes advantage of a situation like Walmart's clearance sale to make a significant profit, it raises ethical questions.

The ethics of such a strategy are complex and subjective. One could argue that the reseller is simply operating within the bounds of a free market, providing goods to those willing to pay the asking price. Others might suggest that the reseller is exploiting both the initial seller's situation and the desperate needs or wants of the consumers.

When discussing market exploitation in an educational setting, it's crucial to acknowledge that while these actions may be legal and economically sound, ethical considerations must also be taken into account. The reseller's actions could be critiqued as taking undue advantage of the unequal information and opportunities between the buyers and sellers. Ultimately, the question of exploitation in the marketplace balances on one's personal ethics, the fairness perceived in the transaction, and the broader impact on the community involved.

As future economists, students should discern that profitability and ethics do not always align, and they should be prepared to evaluate economic decisions from multiple perspectives.