Question

There are 30 sellers, each of whom has a house to sell. Each seller values his house at 10,000 Dollars. That is, they are willing to sell their houses as soon as someone offers to them a price above 10,000 Dollars. There are 10 buyers. Each buyer is willing to pay up to 100,000 Dollars for a house. All 10 houses are identical from the buyers’ point of view. What market outcome (prices and quantities) does the law of demand and supply predict for this market? Is the market outcome fair? (Before you answer the second question, reflect on the notion of fairness. Explain in one paragraph what you mean by fairness, and in a second paragraph answer the question whether the market outcome is fair.)

Answer 1