Assume that there are four consumers (A, B, C, and D), each with their individua
ID: 1195638 • Letter: A
Question
Assume that there are four consumers (A, B, C, and D), each with their individual maximum willingness to pay for a product. Assume that there are four sellers (W, X, Y, and Z), each with a minimum price at which they are willing to sell. These reservation prices are given in Table 2 below. Assume that each seller has one unit to sell and each buyer only wants to buy one unit.
Consumers Willingness to Pay
A $120
B $110
C $95
D $80
Sellers Willingness to Sell
W $70
X $85
Y $95
Z $115
Table 2: Reservation Prices of Four Buyers and Four Sellers
2(a). If the price in the market was $95, which consumers would buy? How much surplus would each consumer get?
2(b). If the price in the market was $95, which sellers would be willing to sell? How much surplus would each seller get?
2(c). If the price in the market was $100, would the total surplus be greater than when the price was $95?
2(d). If you could match buyers and sellers in order to maximize the number of units ex-changed, then buyers and sellers should be matched? What would be the total surplus resulting from these matches?
Explanation / Answer
2(a). If the price in the market was $95, consumer C, B and A would buy it. How much surplus would each consumer get. C will get $0, B will get $15, and A will get $25.
2(b). If the price in the market was $95, sellers W, X and Y are willing to sell. Surplus -- W will get $25, X will get $10 and Y will get $0.
2(c) Yes
2(d) $40 would be the total surplus.