For figure 8-9, demand with zero transaction costs is Q of 1 sub D = 50 – P and

Question

For figure 8-9, demand with zero transaction costs is Q of 1 sub D = 50 – P and supply is Q sub S = -7 + 2P.

Verify the prices and quantities calculated in the discussion.

Now assume 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 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.

Does your answer to Question 16a change if buyers pay $8 per unit to the intermediary but sellers offer to rebate part of the expense to the buyers?

Link to figure 8-9:
http://books.google.com/books?id=2sGu5E-xaHMC&pg=PA266&dq=16.+For+figure+8-9,+demand+with+zero+transaction+costs+is&hl=en&sa=X&ei=VwkvT-TTOoPUiALLgrXACg&ved=0CDAQ6AEwAA#v=onepage&q=16.%20For%20figure%208-9%2C%20demand%20with%20zero%20transaction%20costs%20is&f=false

Explanation / Answer

In this case, set Qd=Qs -7+2P=50-P 3P=57 P=57/3 Plug P into either function to get Q 50-(57/3)=31 Hope this helps

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