Question

Table 7-5 For each of three potential buyers of oranges, the table displays the willingness to pay for the first three oranges of the day. Assume Allison, Bob, and Charisse are the only three buyers of oranges. First Orange Orange Second Third Orange Allison $2.00 $1.50 |$0.75 Bob $1.50 51.00 $0.60 Charisse $0.75 $0.25 Refer to Table 7-5. If the market price of an orange is $0.90, then the market quantity of oranges demanded per day is 5.

Answer 1

1. If market price = $0.90.

Consumer would buy that much quantity of a good at which marginal willingness to pay for a unit of good is greater than or equal to the price.

Therefore, Allison would buy 2 oranges.

Bob would buy 2 oranges

And Charisse would buy 0 oranges.

So, the market quantity of oranges at price of $0.90 is (2+2+0)= 4 oranges. Hence, option(D) is correct.

2. The amount of the tax on each unit of good is (price that buyers pay- price sellers receive)= (P3 - P1). Hence, option(A) is correct.

3. The equilibrium price before the tax is imposed is when demand equal supply , therefore equilibrium price = P2. Hence, option(B) is correct.