Supposethatthemarketisperfectlycompetitive,andtheconditionofanindividualbagisunobservablebyboththebuyerandseller.Whatisthemarketoutcome?Youmayassumethatbuyersandsellersknowtheoveralldistributionofbagsacrossthefiveconditiongrades.Pleasemakesuretocomputeandstatetheequilibriumprice,quantityandeconomicsurplusthatarisefromtrade.Also,provideavisualdepictionofyourresultusinganappropriatedemandandsupplydiagram.

Now let's consider the market for a particular vintage designer product, a Louis Vuitton Speedy bag: The Speedy bag has been sold continuously since it was rst created in 1930. As a result, the condition of vintage Speedy bags is quite variable. Let's suppose that the bags can be graded in descending order so that the bags in the best condition are graded as A while the bags in the worst condition are graded as E. Also assume that all the Speedy bags on the market are evenly distributed across these ve grades. This implies that if we selected a seller at random from the marketplace, it is equally likely that his or her bag is grade A, B, C, D, or E. There are 2000 buyers on the online marketplace for Speedy bags. Each buyer demands a single bag and has the following valuations for the five different grades: There are 1000 sellers on the online marketplace for Speedy bags. Each seller owns a single bag and has the following opportunity costs for the ve different bag grades: This means that if a seller knows that he is holding a grade \"A\" bag. he must be compensated at least $1,800 in any exchange. You can therefore treat the opportunity costs of each seller like a marginal cost of production