Suppose there is a neighborhood where there are three parents looking for a babysitter for one hour (the buyers) and three teenagers willing to babysit (the sellers). The table below shows the reservation values of the buyers and sellers for the one hour of babysitting.
|
Parents
|
Reservation Value ($)
|
Babysitters
|
Reservation Value ($)
|
|
John
|
15
|
Ken
|
14
|
|
Marcia
|
12
|
Hank
|
11
|
|
Suzanne
|
10
|
Greta
|
8
|
a) Use the data in the table above to plot the demand and supply curve for babysitters.
b) What will be the equilibrium quantity of babysitters hired?
c) What is the social surplus if 2 babysitters are hired? What is the social surplus if 3 babysitters are hired? Explain why social surplus declines when 3 babysitters are hired.