1 Consider the market for yachts The market price of each ya

1. Consider the market for yachts. The market price of each yacht is $225,000, and each buyer demands no more than one yacht.

Suppose that Rajiv is the only consumer in the yacht market. His willingness to pay for a yacht is $450,000. Based on Rajiv\'s willingness to pay, the following graph shows his demand curve for yachts.

2.

Suppose Yakov is willing to pay a total of $150,000 for a yacht.

True or False: Keeping his maximum willingness to pay for a yacht in mind, Yakov will buy the yacht because it would be worth more to him than its market price of $225,000.

Solution

Answer 1) Rajiv will buy the yacht because he will ge a consumer surplus of 450-225 = 225 from buying the yacht

Answer 2) Yakov will not be able to buy the yacht. He does not have the purcasing power to do so.