Reference no: EM13189061
demand with zero transactions costs is Q_D^1=50-P and supply is Q_S=-7+2P.
a. Verify all of the prices and quantities calculated in the discussion.
At equilibrium, the quantity demanded and the quantity supplied are equal to each other; therefore, 50-P=-7+2P or 57-3P=0; therefore, P=$19, Q_D^1=31, Q_S=31
So Price is $19 at equilibrium, which is Demand = 31 units and Supply = 31 units.
Would you be able to explain what they are asking as well as provide me with a solution?
b. Now assume that intermediaries come from a competitive market with an equilibrium price of $8 per unit for their services, that is, any buyer or seller who wants an intermediary's services must pay $8 for them. What is the maximum per unit that sellers are willing to pay intermediaries if hiring them saves buyers $8 in transaction costs?
c. Does your answer to Question 16a change if buyers pay $8 per unit to the intermediary but sellers offer to rebate part of that expense to buyers?
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