Question

A.1 Market Equilibrium Question 2: Suppose there are four people interested in buying a pair of shoes: The first is willing to pay up to $11.00 for a pair of shoes; the second, up to $8.00; the third, up to $6.00; and the fourth, up to $4.00 Also suppose there are three people interested in selling a pair of shoes: The first is willing to sell for as little as $10.00 for a pair of shoes; the second, as little as $6.50; and the third, as little as $4.00 Compute the competitive-equilibrium price of shoes if all those people trade shoes on eBay. Tip: Notice that both demand and supply are in discrete units, so you must connect discrete points to form demand and supply curves, as in the class lesson. Answer to Question:

Answer 1

The given information on the demand and supply side is shown as below:

Supply Curve 10 6.5 Price per pair of Shoe 4 Demand Curve 2 0 1 4 Number of Pairs of Shoes

It shall be noted that equilibrium is reached at a point where the willingness to pay by the consumer is at least equal to the willingness to accept a price by the seller.

When the price charged by the seller for nth pair of shoe is higher than the price that consumer is willing to pay, the equilibrium is attained at a level less than nth pair of the shoe.

It shall be noted that for the first pair of shoe , the consumer is willing to pay $ 11 whereas, the seller is willing to sell at $4

For the second pair of shoe, the consumer is willing to pay $8, whereas, the seller is willing to sell at $6.5

For the third pair of shoe, the consumer is willing to pay $6, however the seller is willing to sell at $10

Thus, the equilibrium price is in the range of $6.5 and $8 as the equilibrium quantity demanded and sold is 2 pairs of shoes.

The optimal equilibrium price would be $8