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ch19_solutions_solved edit - Solutions to Chapter 19...

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Solutions to Chapter 19 Exercises SOLVED EXERCISES S1. (a) The existence of buyer B 2 means that buyer B 1 will not be able to buy at any price below 200. If B 1 tried to strike a deal at (for example) 190, B 2 could offer to pay 191; if B 2 bought at that price, B 1 would receive a surplus of 9 rather than the 0 he would receive if he were shut out of the market. In turn, the existence of buyer B 1 means that buyer B 2 will not be able to buy the good. Buyer B 2 is willing to pay only 200; no matter what offer B 2 makes, B 1 is willing to pay more in order to acquire the item and receive some surplus rather than be shut out of the market. The seller S is willing to sell as long as he gets at least 100; since B 1 will have to pay at least 200, S will sell the item to B 1 . The price will be somewhere between 200 and 300 depending on the outcome of the bargaining between B 1 and S. (b) Solutions to Chapter 19 Solved Exercises 1 of 2
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S2. The figure is below. See three houses traded at a price of 100 each.
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ch19_solutions_solved edit - Solutions to Chapter 19...

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