Rick and Kate want to go on a date. Rick wants to go to a rock concert while Kate wants to go to a movie. Rick values going to the concert at $100, while Kate values watching a movie at $50. What is the equilibrium in this situation?
What will be an ideal response?
Because Rick values going to the concert at $100, while Kate values watching a movie at $50, an efficient outcome can be reached if Rick decides to give an amount between $50 and $100 to Kate. Kate will be better off as she will get an amount higher than her valuation for the movie, and Rick will be better off as he will have to pay an amount lower than his value for the concert. Therefore, this equilibrium is efficient. However, the exact amount that Rick will have to pay will depend on his bargaining power.
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What will be an ideal response?
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