Question

The following table shows the value of taking a piano lesson for five students, and the opportunity cost of teaching a piano lesson for five instructors. Each instructor can teach only one student, and each student can take only one lesson Value of a Lesson (Willingness to pay, $) Opportunity Cost (Value of best alternative, $) Student Jerry Melissa Arnold Jade George Instructor Barbara Sandy Jacob Jack Laura If prices are negotiated directly between instructor and student, it is for all five students to have lessons, and for all students and all instructors to be better off than they would have been otherwise. On the following graph, use the blue points (circle symbol) to plot the demand for piano lessons. Then, using the orange points (square symbol), plot the supply of piano lessons. Plot each curve as a step function, so that the total number of people willing to buy or sell lessons at each price is shown accurately. The first point on your demand curve should be (0, $72), and the last point should be (5, $0). Similarly, the first point on your supply curve should be (0, $16), and the last point should be (5, $80). PRICE (Dollars per piano lesson] EL 22

Answer 1

Jerry sice supply Melissa Arnold Barbarat Jad sandy Httttttta George Jacob Jack Demand Laura 1 2 3 4 5 Quantity

It is not possible for all five students to have piano lessons.

reason- George can not find instructor.

Price = $40

At price $40, Demand meets supply.

Total surplus=(72-16)+(56-24)+(48-32)=56+28+16=100

Total surplus=$100

● Jack gives Melissa a piano lesson

Reason- After price Ceiling of $58, only Jerry is willing to take the piano lesson.

● Efficient allocation of resources

Reason- Those who can pay highest for the piano lessons will be given the lesson first and who can have least opportunity cost can teach first.

● Highest possible total surplus.

reason- at equilibrium Price, total surplus is Highest