Answered: An alternative way of thinking about…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

An alternative way of thinking about the forces that cause markets to equlibrate in the real world is to think of markets reallocating the good from low to high valued use.

Or to think of how the action of buyers and sellers engaging in mutually beneficial voluntary exchange (market forces) reallocates legal ownership or the physical location of the good from low to high valued used.

When a unit of a good is sold, that means the value the seller places on the good is lower than the value the buyer places on the good. After the sale has taken place, the ownership of the good has been transferred from a person who has a low value to a person with a high value. This is called a reallocation from low to high valued use.

Sometimes this reallocation involves a physical movement of the good rather than a transfer of legal ownership. The good is transported from an area where the price of the good is low to an area where the price of the good is higher. This is also called a reallocation from low to high valued use.

Consider the first 2 units of the good that would be sold in this market (the vertical red line on the graph). Look at the image bellow. which answer choices fits with this graph?

Quantity Demanded
Market
12
Price
Ying
Som
Fon
Nam
Gob
Yam
Demand
10
1
1
2
4
7
1
4
4
9
10
6
3
4
6
21
5
3
6.
3
5
26
4
1
3
7
8
29
3
8
7
10
5
36
5
10
10
40
1
1
7
12
11
10
7
48
8
Market Supply
6
- Market Demand
4
Quantity Supplied
Cartoon
Apple
6
Market
Oiy
7
Price
Вoom
Kai
10
Mint
7
Supply
10
1
11
42
9.
10
34
8.
5
3
4
7
10
8
31
7
3
24
6.
2
21
1
2
6
14
4
1
4
4
9
2
2
2
1
02 units
30
10
20
40

For the first 2 units, buyers value those 2 units at $9 each.
For the first 2 units, sellers value those 2 units at $9 each.
For the first 2 units, sellers value those 2 units at $2 each.
For the first 2 units, buyers value those 2 units at $2 each.
Mutually beneficial trade occurs when after the trade both the buyer and seller are better off.
For the first 2 units of the good sold in this market, there is an opportunity for mutually
beneficial trade because the value buyers put on those first 2 units is higher than the value
sellers place on those 2 units.
For the first 2 units of the good sold in this market, there is an opportunity for mutually
beneficial trade because the value buyers put on those first 2 units is lower than the value
sellers place on those 2 units.

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