Look at the two tables below, which show, respectively, the
willingness to pay and willingness to accept of buyers and sellers
of 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. Also assume that each
individual purchases or sells one bag of oranges.
| Consumers | Producers | |||||
| Person | Maximum Price Willing to Pay |
Actual Price (Equilibrium Price) |
Person | Minimum Acceptable Price | Actual Price (Equilibrium Price) |
|
| Bob | $14 | $8 | Carlos | $3 | $8 | |
| Beata | 12 | 8 | Courtney | 4 | 8 | |
| Bill | 11 | 8 | Carla | 5 | 8 | |
| Bella | 10 | 8 | Cindy | 6 | 8 | |
| Brent | 9 | 8 | Carmela | 7 | 8 | |
| Betty | 8 | 8 | Chad | 8 | 8 | |
a. Given the equilibrium price of $8, what is the
equilibrium quantity given the data above?
Instructions: Enter only whole numbers in the table
below.
Equilibrium quantity = _____ bags
b. What if, instead of bags of oranges, the data
in the two tables dealt with a public good like fireworks
displays?
Instructions: Enter only whole numbers in the table
below.
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-perbag tax on
sellers..
Instructions: Enter only whole numbers in the table
below.
What is the new equilibrium price? P* = $ _____
What is the new equilibrium quantity? Q* = _____ bags
If the new equilibrium quantity is the optimal quantity, by how
many bags were oranges being overproduced before?
Q* = _____ bag
a. Given the equilibrium price of $8, the
equilibrium quantity is 6 units because all six buyers are willing
to pay at least $8 and all six sellers are willing to accept at
least $8
Equilibrium quantity = 6 bags
b. If all the buyers free ride, there will be no
quantity supplied by private sellers because all will presume that
the other is paying the price. Q* = 0
c. Government has imposed a $2-perbag tax on
sellers which increases their willingness to pay by $2. This will
drive Betty and Chad out of market because Betty cannot pay more
than $8 and Chad cannot receive less than $10. The other five will
trade with each other at a price of $9.
The new equilibrium price P* = $9. The new equilibrium quantity Q*
= 5 bags. If the new equilibrium quantity is the optimal quantity,
a total of 1 bag was being overproduced before. Q* = 1 bag
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