Question

Look at the tables below, which show, respectively, the willingness to pay and willingness to accept of buyers and sellers of individual bags of oranges. For the following questions, assume that the equilibrium price and quantity will depend on the indicated changes in supply and demand. Assume that the only market participants are those listed by name in the two tables Minimum Maximum Actual Equilibrium Acceptable Price Person Price Willing To Pay $21 16 Person Price $10 10 10 10 10 10 S2 Bob Barb Bill Bart Brent Betty Carlos Courtney Chuck Cindy Craig Chad 12 10 10 Instructions: Enter your answers as whole numbers a. Given the equilibrium price of $10, what is the equilibrium quantity given the data above? bag(s) b. What if, instead of bags of oranges, the data in the two tables dealt with a public good like fireworks displays? If all the buyers free ride, what will be the quantity supplied by private sellers? bag(s)

Answer 1

a. The equilibrium price is given to be $10. Willingness to pay is more than or equal to S10 for five people, who are Bob, Barb, Bill, Bart and Brent. Also, minimum acceptable price at which a producer is ready to sell his/her commodity is less than or equal to $10 for five sellers, who are Carlos, Courtney, Chuck, Cindy and Craig Therefore, the equilibrium quantity. Ơ, is 5 ba If all the buyers free ride, it means that they will all want to pay nothing for the fireworks and therefore, the total willingness to pay of all the buyers will be zero. Since price is S10 and buyers' willingness to pay is less than the price, the quantity supplied will be zero Therefore, the equilibrium quantity, Q, is 0 bag When government imposes $8-per-bag tax on sellers, half of its price is borne by the buyers and the remaining half by the producers. Therefore, $4 will be paid by the consumers and the price will increase to $14 Therefore, the equilibrium price will be S14 Willingness to pay is more than or equal to $14 for three people, who are Bob, Barb and Bill. Also, minimum acceptable price at which a producer is ready to sell his/her commodity is less than or equal to S14 for six sellers, who are Carlos, Courtney, Chuck, Cindy, Craig and Chad. Since demand is less than the supply, only three demanded bags will be sold. Therefore, the equilibrium quantity, Q, is 3 bags New equilibrium quantity is 3 bags and the old equilibrium quantity is 5 bags. Therefore, 2 bags 5 bags -3 bags) were overproduced before