Look at the tables below which show respectively the willing

Look at the tables below, which show, respectively, the willingness to pay and willingness to accept of buyers and sellers of individual bags of oranges. For the following questions, assume that the equilibrium price and quantity will depend on the indicated changes in supply and demand. Assume that the only market participants are those listed by name in the two tables Minimum Maximum Actual Equilibrium Acceptable Price Person Price Willing To Pay $21 16 Person Price $10 10 10 10 10 10 S2 Bob Barb Bill Bart Brent Betty Carlos Courtney Chuck Cindy Craig Chad 12 10 10 Instructions: Enter your answers as whole numbers a. Given the equilibrium price of $10, what is the equilibrium quantity given the data above? bag(s) b. What if, instead of bags of oranges, the data in the two tables dealt with a public good like fireworks displays? If all the buyers free ride, what will be the quantity supplied by private sellers? bag(s)

Solution

a) Q= 5 bags

Reason- To determine the equilibrium price,we begin by comparing the highest willingness to pay with the minimum acceptable price.This goes on until the maximum willingness to pay is equal to the minimum acceptable price.This occurs for the trade between Brent and Craig.All the five producers till that point will produce 5 units which the purchasers will be willing to buy.So,the equilibrium quantity is 5.

b) Q= 0 bags

If the data in the two tables dealt with a public good instead of oranges like fireworks displays and all the buyers free ride, then the quantity supplied will be zero.Everyone will try to pay a zero price.

c) New Equilibrium P= 14

New Equilibrium Q= 3 bags

Bags being overproduced Q= 3 bags

Reason- when the government a $8 per tax on sellers,add the amount to the minimum acceptable price of all the sellers and find the equilibrium price until the maximum willingness to pay is equal to the minimum acceptable price which happens between Bill and Chuck. Solve the rest using the same reason as given in a.