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 the scenario above.Suppose that,after the price ceiling is imposed,the shortage forces buyers to offer bribes to the seller in order to secure a loaf.If each buyer offered as much as his or her reservation value,and the seller sells to the highest bidders,how many loaves will exchange hands? Is the outcome efficient?

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 the scenario above.Suppose that,after the price ceiling is imposed,the shortage forces buyers to offer bribes to the seller in order to secure a loaf.If each buyer offered as much as his or her reservation value,and the seller sells to the highest bidders,how many loaves will exchange hands? Is the outcome efficient?

Quizplus · Accepted Answer

When buyers offer bribes up to their reservation value and the seller sells to the highest bidders, the market will clear at the quantity where supply equals demand, which is 5 loaves in this scenario. This outcome is efficient because it maximizes the total surplus, with the loaves going to those who value them the most.

Scenario: the Table Below Shows the Reservation Values of Ten