Suppose there are 11 buyers and 11 sellers,each willing to buy or sell one unit of a good,with values {$14,$13,$12,$11,$10,$9,$8,$7,$6,$5,$4,}.Assume no transaction costs and a competitive market.At the optimal bid-ask spread,how many transactions would the market maker undertake in this market

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Quizplus · Accepted Answer

The optimal bid-ask spread is $1, so the market maker would buy from the seller with the lowest value ($4) and sell to the buyer with the highest value ($14). This would result in three transactions.

Suppose There Are 11 Buyers and 11 Sellers,each Willing to Buy