Question

What is the difference between willingness to accept and willingness to pay? For a trade to take place what is the necessary relationship between these two? Explain your answer.

Answer 1

Willingness to accept: It is the minimum amount that a seller is ready to take to sell a particular quanitity of a good. For example, there ia firm whose supply curve is P= 3Q, where P is the minimum amount that seller want for each quantity. If Q=1, then P= 3 it means that 3 is minimum price that a seller willingli accept to supply 1 quantity of good.

Willingness to pay: It is the maximum amount that a buyer is ready to pay for accepting a particular quantity of good. For example, there is firm whose demand curve equation is P=40-3Q. Here if Q= 10 then P=10, it implies that for 10 quantities a consumer is ready to pay 10 which is its willingness to pay.

For trade to take place, the willingness to accept by a seller must be less than or equal to the willingness to pay by producer. The reason being suppose willingness to accept for 10 quantity is $10 but willingness to pay by consumer for 10 quantity is $8 then there will be no trade because of higher willingness to accept consumer does not able to purchase anything.