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.

-Refer to the scenario above.Suppose that the government forces the seller to sell 10 loaves,each at its marginal cost,to the government.Then the government sells the 10 loaves to buyers,one for each buyer,at their reservation values.Who gets the social surplus?

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.
 
-Refer to the scenario above.Suppose that the government forces the seller to sell 10 loaves,each at its marginal cost,to the government.Then the government sells the 10 loaves to buyers,one for each buyer,at their reservation values.Who gets the social surplus?

Quizplus · Accepted Answer

When the government buys the loaves at marginal cost and sells them to buyers at their reservation values, it captures the difference as revenue. This difference between the buyers' reservation values and the marginal cost represents the social surplus, which in this case is captured by the government.

Scenario: the Table Below Shows the Reservation Values of Ten