Q3.The table below depicts the maximum buying prices and minimum selling prices that potentialbuyers and sellers have for a horse. Assume that a horse is considered to be a good of the firstorder.Potential Buyer$300$280$260$240$220$210$200$180$170$150AlA2A3A4ASA6A7A8A9A10Potential Seller$100$110$150$170$200$215$250$260BlB2B3B4B5B6B7B8(a). Based on the original valuations of potential buyers and sellers in the table above, identifythe market clearing price that will bring this market to a state of rest. Provide a description of theimportant properties of this price.(b). Distinguish between the original valuations with which the market participants enter themarket and the momentary valuations that prevail when they engage in exchange. Focusing onthe potential sellers, explain why each of them would try to align their momentary valuationswith the market clearing price?(c). Assume now that trade takes place at a price that is not the market clearing price. Trace theimplications of this for further exchange in this market. Will the new market clearing price beidentical to what was implied in the valuations in the table? If you think it will not, explain why.(d). Explain why those sellers that price their goods closer to the underlying market clearingprice will earn a larger monetary revenue as compared to those who price their goods furtheraway from the market clearing price.

Market clearing price is achieved at the price level where market demand and supply are equal , and…

The table below depicts the maximum buying prices and minimum selling prices that potential buyers and sellers have for a horse. Assume that a horse is considered to be a good of the first order. Potential Buyer $300 $280 $260 $240 $220 $210 $200 Al A2 A3 A4 AS A6 A7 Potential Seller $100 $110 $150 $170 $200 $215 $250 B1 B2 B3 B4 B5 B6 B7

The table below depicts the maximum buying prices and minimum selling prices that potential buyers and sellers have for a horse. Assume that a horse is considered to be a good of the first order. Potential Buyer $300 $280 $260 $240 $220 $210 $200 Al A2 A3 A4 AS A6 A7 Potential Seller $100 $110 $150 $170 $200 $215 $250 B1 B2 B3 B4 B5 B6 B7

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 4PA

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