Question

16. How prices allocate resources Suppose that there are three beachfront parcels of land available for sale in Asilomar and six people who would each like to purchase one parcel. Assume that the parcels are essentially identical and that the minimum selling price of each is $570,000. The following table states each person's willingness and ability to purchase a parcel. Person Dmitri Frances Willingness and Ability to Purchase (Dollars) 700,000 630,000 590,000 550,000 510,000 500,000 Jake Latasha Nick Rosa Which of these people will buy one of the three beachfront parcels? Check all that apply. Dmitri 0 Frances 0 Jake 0 Latasha 0 Nick 0 Rosa Assume that the three beachfront parcels are sold to the people that you indicated in the previous section. Suppose that a few days after the last of those beachfront parcels is sold, another essentially identical beachfront parcel becomes available for sale at a minimum price of $560,000. This fourth parcel be sold, because will purchase it from the seller for at least the minimum price.

Answer 1

A consumer can purchase a beachfront parcel if the willingness to pay of the consumer is more than the selling price of the product. The willingness to pay shows the maximum amount that a buyer is willing to pay for a product. So, when the willingness to pay is less than the price, the buyer cannot purchase that product.

It is given that the market price of a beachfront parcel is $570,000. The people with willingness to pay more than $570,000 are Frances, Dmitri and Jake.

So, Frances, Dmitri and Jake will buy one of the three beachfront parcels.

If the price falls to $560,000 then the fourth parcel will not be sold because no one will purchase it from the seller for at least the minimum price. Since there is no individual left with $560,000 willingness to pay, in order to sell the fourth parcel, the price must be lowered to $550,000 and then Latasha can purchase the fourth parcel since the willingness to pay of Latasha is $550,000.