Scenario: Suppose a competitive market has ten buyers and ten sellers. The product exchanged in this market is beach hats, which are indivisible. The following table shows the reservation values for both buyers and sellers.

-Refer to the scenario above.Suppose the equilibrium price in this market is $10.,but only 2 hats are allowed to be exchanged in this market.What is the amount of social surplus in this market under this restriction?
A) $20
B) $10
C) $26
D) $29

Question

Scenario: Suppose a competitive market has ten buyers and ten sellers. The product exchanged in this market is beach hats, which are indivisible. The following table shows the reservation values for both buyers and sellers.
 
-Refer to the scenario above.Suppose the equilibrium price in this market is $10.,but only 2 hats are allowed to be exchanged in this market.What is the amount of social surplus in this market under this restriction?
A) $20 
B) $10 
C) $26 
D) $29

Quizplus · Accepted Answer

To find the social surplus, we need to calculate the area between the supply and demand curves up to the quantity exchanged, which in this case is 2. 
At a price of $10, only two sellers are willing to sell, who have a reservation price of $7 and $9 respectively. These two sellers will earn a total revenue of $18. 
On the demand side, only two buyers are able to buy, who have a reservation price of $12 and $15 respectively. These two buyers will spend a total of $25 on buying the two hats. 
Therefore, the total social surplus is $25 + $18 - (2 x $10) = $26.

Scenario: Suppose a Competitive Market Has Ten Buyers and Ten