Question

In: Economics

5. There are five buyers and five sellers in a perfectly competitive market. Each buyer wishes...

5. There are five buyers and five sellers in a perfectly competitive market. Each buyer wishes to purchase one single unit of the good. The willingness to pay displayed by these buyers is presented in the following table:

Buyer:

1

2

3

4

5

Willingness to Pay:

$4

$8

$2

$5

$7

Each firm sells also only one unit of the good. The cost of producing that unit for these firms is denoted by the following table:

Seller:

1

2

3

4

5

Production Cost:

$7

$2

$3

$5

$4

a) Suppose that the price for this good is set as P = 3. Is there excess demand or supply in this market? Explain.

b) Assume that in case of indifference both sellers and buyers proceed to supply and demand in this market. What is the equilibrium quantity we will observe in this market and the range of prices that would support that quantity? Explain.

c) Determine the value of the maximum total surplus that we can observe in this market. Explain.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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