William owns a car that he values at $3000.Jackson values the car at $5000.The negotiations between them for a potential trade are as follows: William offers a price to Jackson.If Jackson accepts, trade takes place at that price.If Jackson rejects no trade takes place.William keeps the car and Jackson gets a payoff of $0.Given the equilibrium outcome of the negotiations, what are the realized gains from trade?
A)$1000
B)$2000
C)$3000
D)$4000
E)$5000

Question

Quizplus · Accepted Answer

In equilibrium, William will offer a price slightly above $3000, which Jackson will accept since he values the car at $5000. The realized gains from trade are the difference between Jackson's valuation and William's valuation, which is $5000 - $3000 = $2000.

William Owns a Car That He Values at $3000