Scenario: The table below shows the reservation values of ten buyers and a seller for a loaf of bread. Each buyer would buy at most one loaf and the seller can make up to ten loaves. Initially trades happen under the market mechanism with each agent making a decision according to the market price and his or her own reservation value. Then the government imposes a price ceiling of $1.00 per unit.

-Refer to scenario above.Suppose that,after the price ceiling is imposed,the seller serves customers on a first-come,first-served basis.This means that the seller's surplus depends on the order in which customers are served.What are the minimum and the maximum possible surpluses for the seller?

Question

Scenario: The table below shows the reservation values of ten buyers and a seller for a loaf of bread. Each buyer would buy at most one loaf and the seller can make up to ten loaves. Initially trades happen under the market mechanism with each agent making a decision according to the market price and his or her own reservation value. Then the government imposes a price ceiling of $1.00 per unit.
 
-Refer to scenario above.Suppose that,after the price ceiling is imposed,the seller serves customers on a first-come,first-served basis.This means that the seller's surplus depends on the order in which customers are served.What are the minimum and the maximum possible surpluses for the seller?

Quizplus · Accepted Answer

After the imposition of the price ceiling, the market price is set at $1.00 per unit, which is lower than the reservation values of all buyers except Buyer 10. Therefore, only Buyer 10 will purchase a loaf of bread.

Since the seller is serving customers on a first-come, first-served basis, the seller's surplus will depend on the order of customers. The maximum possible surplus for the seller occurs when Buyer 10 is served first, as the seller's surplus is equal to the difference between the market price and the seller's reservation value, which is $11.00.

The minimum possible surplus for the seller occurs when Buyer 1 is served first, as the seller's surplus will be zero because the market price is equal to or lower than the reservation values of all other buyers.

Therefore, the minimum and maximum possible surpluses for the seller are $0 and $11.00, respectively, and the best choice is C.

Scenario: the Table Below Shows the Reservation Values of Ten