I have figured out part (a.) of this question; however, I am having difficulty w

Question

I have figured out part (a.) of this question; however, I am having difficulty with b. and c. Can you please help me understand?

For Figure 8-9, demand with zero transactions costs is and supply is .

a. Verify all of the prices and quantities calculated in the discussion.

At equilibrium, the quantity demanded and the quantity supplied are equal to each other; therefore,

50-P=-7+2P or 57-3P=0; therefore, P=$19, Q_D^1=31, Q_S=31

So Price is $19 at equilibrium, which is Demand = 31 units and Supply = 31 units. I do not understand what the next 2 questions are even asking. Would you be able to explain what they are asking as well as provide me with a solution? I'm more interested in LEARNING this than just getting the answer, so I really need help with the explanation of how you come up with the solution. Thank you so much! - Brian

b. Now assume that intermediaries come from a competitive market with an equilibrium price of $8 per unit for their services, that is, any buyer or seller who wants an intermediary’s services must pay $8 for them. What is the maximum per unit that sellers are willing to pay intermediaries if hiring them saves buyers $8 in transaction costs?

c. Does your answer to Question 16a change if buyers pay $8 per unit to the intermediary but sellers offer to rebate part of that expense to buyers?

Explanation / Answer

In this case, set Qd=Qs -7+2P=50-P 3P=57 P=57/3 Plug P into either function to get Q 50-(57/3)=31 In this case, they are willing to pay 57/3 dollars per unit which is well above the 8 Hope this helps

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