Question

1. Price as a rationing device Suppose that there are three beachfront parcels of land available for sale in Asilomar, and six people who would each like to purchase one parcel Assume that the parcels are essentially identical and that the minimum selling price of each is $445,000. The following table states each person's willingness and ability to purchase a parcel. Hubert Kate Manuel Poornima Shen Valerie Willingness and Ability to Purchase (Dollars) 600,000 510,000 470,000 420,000 390,000 380,000

Answer 1

As we can see from the table that Hubert, Kate, and Manuel each will purchase the parcels because they are the only ones willing and able to pay the selling price of $445,000. Other three people might have the ability but not the willingness to pay the required price.

Suppose that a few days after the last of those beachfront parcels are sold, another essentially identical beachfront parcel becomes available for sale at a minimum price of $432,500. This fourth parcel will not be sold because no one will purchase it from the seller for at least the minimum price.

The maximum price at which parcel is sold is $420,000.