Question

Look at the tables below, which show, respectively, the willingness to pay and willingness to accept of buyers and sellers of individual bags of oranges. For the following questions, assume that the equilibrium price and quantity will depend on the indicated changes in supply and demand. Assume that the only market participants are those listed by name in the two tables.

Person:	Max price person willing to pay	Actual Price
bob	$13	$8
barb	12	8
bill	11	8
bart	10	8
brent	9	8
betty	8	8

Person	Min Acceptable Price	Actual Price
Carlos	$3	$8
Courtney	4	8
Chuck	5	8
Cindy	6	8
Craig	7	8
Chad	8	8

a. Given that the equilibrium price is $8, what is the equilibrium quantity given the data displayed in the two tables?

     Q* =  bag(s).

b. What if, instead of bags of oranges, the data in the two tables dealt with a public good like fireworks displays? If all the buyers free ride, what will be the quantity supplied by private sellers?

     Q* = .

c. Assume that we are back to talking about bags of oranges (a private good), but that the government has decided that tossed orange peels impose a negative externality on the public that must be rectified by imposing a $2-per-bag tax on sellers. What is the new equilibrium price?

     P* = $.

     What is the new equilibrium quantity?

     Q* =  bag(s).

     If the new equilibrium quantity is the optimal quantity, by how many bags were oranges being overproduced before?

     Q* =  bag(s).

Answer 1