The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook.

-Refer to the table above.If the market for notebooks is perfectly competitive,the equilibrium price is ________.
A) $2
B) $3
C) $4
D) $5

Question

The following table displays the reservation values of buyers and sellers in the market for notebooks, where each individual either wants to buy or sell one notebook.
 
-Refer to the table above.If the market for notebooks is perfectly competitive,the equilibrium price is ________.
A) $2 
B) $3 
C) $4 
D) $5

Quizplus · Accepted Answer

The equilibrium price is the price at which the quantity demanded of notebooks equals the quantity supplied of notebooks. At a price of $4, there are 5 buyers who are willing to buy notebooks (with a reservation value of at least $4) and 4 sellers who are willing to sell notebooks (with a reservation value of at most $4). At any price higher than $4, there will be excess supply, and at any price lower than $4, there will be excess demand. Thus, $4 is the equilibrium price.

The Following Table Displays the Reservation Values of Buyers and Sellers