Question

Suppose you value a sandwich at $1.50 while the sandwich shop is unwilling to sell a...

Suppose you value a sandwich at $1.50 while the sandwich shop is unwilling to sell a sandwich for less than $1.00. At what price would there be an efficient transaction?

Homework Answers

Answer #1

The transactions should be efficient only when the total surplus is maximized. In this case if the price is $1, then you will be maximizing your consumer surplus which is then $1.50 - $1 = $0.50. if the price is $1.50 then the seller will be maximizing his producer surplus. Both of these prices will result in maximizing total surplus and thus, the efficiency. Therefore any price that lying between 1.5 to 1 dollar will result in an efficient transaction because it will be maximizing total surplus.

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