Imagine that eMarkets! is a company that implements a competitive market in MP3 players. Based on information it gathers, it tells producers what the equilibrium price will be so that they can decide how much to produce. And once production has occurred, it allocates output to consumers based on the price and their willingness to pay.
a. What information would they need to know from consumers and producers in order to find the equilibrium price and quantity of MP3 players?
b. Suppose that eMarkets! has determined that, once production occurs and trading happens, the equilibrium price will be $199 and the equilibrium quantity will be 10,000 units. But also suppose that due to a computer glitch, it informs some producers that the price will be $299, while it informs some producers that the price will be $99. How will producer surplus be affected? Can you determine the effect on the quantity produced-will it be equal to, less than, or more than the equilibrium quantity?
c. Also suppose that due to the computer glitch, some consumers with a willingness to pay of $299 are told that the price is $399. An equal number of consumers who have a willingness to pay of $119 are allowed to buy the good at a price of $99. How will consumer surplus be affected?