Question

16. How prices allocate resources Suppose that there are three beachfront parcels of land available for sale in Huntington 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 $400,000. The following table states each person's willingness and ability to purchase a parcel. Person Willingness and Ability to Purchase (Dollars) 420,000 380,000 Andrew Beth Darnell 340,000 Eleanor 330,000 Sam 550,000 480,000 Teresa Which of these people will buy one of the three beachfront parcels? Check all that apply. Andrew Beth Darnell Eleanor Sam Teresa

Answer 1

Ans) An individual will buy a beachfront parcel only if his/her willingness and ability to purchase >= minimum selling price of the beachfront parcel. Using this information, we can find from the given table that, Andrew, Sam and Teresa will be able to buy one of the three beachfront parcels.

For Andrew: willingness and ability to purchase ($4,20,000) > minimum selling price of the beachfront parcel ($4,00,000). So he will buy.

For Sam : willingness and ability to purchase ($5,50,000) > minimum selling price of the beachfront parcel ($4,00,000). So he will buy.

For Teresa: willingness and ability to purchase ($4,80,000) > minimum selling price of the beachfront parcel ($4,00,000). So she will buy.

Now, when the minimum selling price of another identical beachfront parcel has come down to $3,60,000, Beth will now be able to purchase the beachfront parcel using the same information as we did above.

For Beth : willingness and ability to purchase ($3,80,000) > minimum selling price of the beachfront parcel ($3,60,000). So he will buy.

This fourth parcel will be sold, because Beth will purchase it from the seller for at least the minimum price.