1.5. Suppose that buyer 9 (with a buyer value of $11) and seller 9 (with a selle

Question

1.5. Suppose that buyer 9 (with a buyer value of $11) and seller 9 (with a seller cost of $9) meet and realize that the textbook is worth more to buyer 9 than to seller 9. If buyer 9 has to pay the $4 tax on any transaction between the two of them, can they agree to a trade that makes both of them better off?

This problem takes you through the results of an experiment like yours, in which students are buying and selling used textbooks. In the first variation of the experiment, the buyers paid a tax of $4.

Here are the values for the willingness to pay for buyers and reservation price for sellers.

Explanation / Answer

If buyer value already includes taxes then they can agree to a trade. They can agree to trade in range between $11 to $9 (It may be $10).

In case if buyer value doesn't include tax then there will not be any transaction possible.

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