Suppose that in a given round in an online market experiment, there are a 10 students...

Suppose that in a given round in an online market experiment, there are a 10 students assigned roles of sellers and 10 assigned roles as buyers. Altogether, they are assigned numbers 1,2,3....22. Each even numbered student is a buyer, and each odd numbered student is a seller. The costs of sellers are twice their student number. The value of buyers is his student number.

a) What is the market clearing quantity?

b) What is the highest possible market clearing price?

c) What is the lowest possible market clearing price?

Solutions

Expert Solution

a) Equilibrium Quantity is 5 because after that the next seller has cost 12 so he/she won't sell for any price less than 12 but any student has no more than 11 as valuation so no one would buy it. Therefore equilibrium quatntity is 5 units.

b) Highest possible market clearing price is what the maximum buyer would be willing to pay which is 11 monetary units.

c) Lowest possible market clearing price is 10 below which the 5th seller won't sell.

Rahul Sunny answered 2 years ago

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