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Unformatted text preview: n those trades
are buyers 1 – 4, and sellers 1 – 4. The aggregate WTP among the buyers is 3400
(calculated as 1000 + 900 + 800 + 700), and the aggregate WTA among the
sellers is 2000 (calculated as 350 + 450 + 550 + 650). Thus, the aggregate social
surplus created by trade in this market is 3400 – 2000 = 1400. (The answer to
Question 18 is calculated in the same way).
The key to Q16 is to re-order the lists. List WTP in descending order (1600, 1500,
etc.) and list WTA in ascending order (450, 550, etc.). The names we have
assigned to buyers and sellers (1, 2, 3, etc.) are arbitrary, so we can order them
however we wish. What matters is that the demand curve plots WTP from highest
to lowest (since we wish to plot how many buyers would be willing to pay a
certain price, and how many would not), while the supply curve plots WTA from
lowest to highest (since we wish to plot how many sellers would be willing to
accept a certain price, and how many would not).
We know that social surplus is maximized because any trade beyond the
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This document was uploaded on 03/03/2014.
- Spring '14