William Owns a Car That He Values at $3000

question 2

Multiple Choice

William owns a car that he values at $3000.Jackson values the car at $5000.The negotiations between them for a potential trade are as follows: William offers a price to Jackson.If Jackson accepts, trade takes place at that price.If Jackson rejects, bargaining proceeds to the next round in which Jackson gets to make a price offer to William.At this point, if William accepts, trade takes place at the price suggested by Jackson.If William rejects the offer, no trade takes place between them.William keeps the car and Jackson gets a payoff of $0.Given the equilibrium outcome of the negotiations, what are the realized gains from trade?

• A)$5000
• B)$4000
• C)$3000
• D)$2000
• E)$1000

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Definitions:

Book Balance

The amount of money on the books or recorded in the financial statements, differing from the actual cash balance due to outstanding checks or deposits in transit.

Zero-balance Account

A type of bank account that maintains a balance of zero, with funds being transferred into it to cover checks written or transactions made.

Master Account

An overarching account that holds multiple sub-accounts, often used by businesses to manage various funds or investments.

Demands for Payment

Requests or invoices issued by creditors or suppliers for the settlement of outstanding debts.