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Question 1 Suppose you have conducted a market experiment where you are interested in understanding the effects of different institutions have on the price of a transaction. Specifically, you wanted to see if a market where sellers had to post their prices would result in higher prices on average than a market where buyers and sellers negotiated in a decentralized manner Your experiment market has the following set of buyers valuations and sellers costs. 2 34 5 6 6 7 Buyers valuation 109 8 7 6 6 5 Sellers Cost (a) (5 points) Draw the demand ans supply curves. (b) (5 points) Determine the theoretical equilibrium price

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Answer #1

Demand curve is the locus of price and quantity demanded whereas supply curve is the locus of supply and quantity supplied. Demand curve is downward sloping and supply curve is upward sloping.

See the graph below.

Pstuco Qiy

Theoretical equilibrium price is where buyers valuation equals sellers cost. In our example it is at 6.

ALL THE BEST :))

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