Question

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.
Person: Max price person willing to pay Actual Price
bob $13 $8
barb 12 8
bill 11 8
bart 10 8
brent 9 8
betty 8 8
Person Min Acceptable Price Actual Price
Carlos $3 $8
Courtney 4 8
Chuck 5 8
Cindy 6 8
Craig 7 8
Chad 8 8
a. Given that the equilibrium price is $8, what is the equilibrium quantity given the data displayed in the two tables?

Q* = 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?

Q* = .

c. Assume that we are back to talking about bags of oranges (a private good), but that the government has decided that tossed orange peels impose a negative externality on the public that must be rectified by imposing a $2-per-bag tax on sellers. What is the new equilibrium price?

P* = $.

What is the new equilibrium quantity?

Q* = bag(s).

If the new equilibrium quantity is the optimal quantity, by how many bags were oranges being overproduced before?

Q* = bag(s).

Answer 1

Answer:

(a)  The equilibrium quantity is Q*  = 6 (b) The quantity supplied by private sellers is Q* = 0 (c) The new new equilibrium price is $9, the new equilibrium quantity is = 5 bags, and the bags were oranges were over produced is Q* = 1

Explanation:

Solution

(a) When the equilibrium price is at $8, the the quantity of equilibrium is  stated as:

From the data given, when the price at equilibrium is $8, then the six consumers namely, bob, barb, bill, brat, Brent, Betty were all willingly to pay much more than the equilibrium price and the 6 producers namely, Carlos, Courtney, chuck, Cindy, Craig, chad accepted, because the price at equilibrium  is greater than the minimum accepted price.

So,

The equilibrium price is Q*  = 6

(b) If all the buyers are free riders, then the maximum willingness of the price of buyers is $0, because the willingness of the buyer's is lesser than the accepted minimum price of the sellers, for this producers will not be willingly to produce, thus the supplied quantity by private sellers is 0

Hence,

Q* = 0

(c) When forcing a $2-per-bag tax on sellers then, the price will increase to $9

So,

The new  price of equilibrium is = $9

At the new equilibrium price $9 where 5 consumer and producer were willing and accepting to pay more than the equilibrium price

So,

The new equilibrium quantity is Q* = 5 bags

Now,

If the new equilibrium quantity of 5 bags is an optimal quantity,

Then,

(6-5) which results to 1 bag were overproduced.

Therefore,

Q* = 1