Scenario: the Table Below Shows the Reservation Values of Ten

question 112

Multiple Choice

Scenario: The table below shows the reservation values of ten buyers and a seller for a loaf of bread. Each buyer would buy at most one loaf and the seller can make up to ten loaves. Initially trades happen under the market mechanism with each agent making a decision according to the market price and his or her own reservation value. Then the government imposes a price ceiling of $1.00 per unit.

-Refer to the scenario above.Suppose that,after the price ceiling is imposed,the shortage forces buyers to offer bribes to the seller in order to secure a loaf.If each buyer offered as much as his or her reservation value,and the seller sells to the highest bidders,how many loaves will exchange hands? Is the outcome efficient?

• A) 4 loaves; no the outcome is not efficient
• B) 5 loaves; no the outcome is not efficient
• C) 5 loaves; yes the outcome is efficient
• D) 6 loaves; yes the outcome is efficient

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Definitions:

Double-declining-balance Method

An accelerated depreciation method that doubles the depreciation expense compared to the straight-line method.

Depreciation Expense

Systematically dividing the expense of a tangible asset over the period it remains useful.

Scrap Value

The estimated worth of an asset's materials when the asset is deemed no longer useful and is intended to be disposed of or recycled.

Straight-line Method

A method of calculating depreciation by evenly spreading the cost of an asset over its expected useful life.