Showing Page:
1/2
Question 4
a)
b)
When the price of each bottle of water is $4, Bert buys two bottles of water. His
consumer surplus is shown as area A in the figure. He values his first bottle of water at $7,
but pays only $4 for it, so has consumer surplus of $3. He values his second bottle of
water at $5, but pays only $4 for it, so has consumer surplus of $1. Thus Bert’s total
consumer surplus is $3 + $1 = $4, which is the area of A in the figure.
c)
When the price of each bottle of water falls from $4 to $2, Bert buys three bottles of
water, an increase of one. His consumer surplus consists of both areas A and B in the
figure, an increase in the amount of area B. He gets consumer surplus of $5 from the first
bottle ($7 value minus $2 price), $3 from the second bottle ($5 value minus $2 price), and
$1 from the third bottle ($3 value minus $2 price), for a total consumer surplus of $9.
Thus consumer surplus rises by $5 (which is the size of area B) when the price of each
bottle of water falls from $4 to $2.
Question 5
a)
Price
Quantity demanded
More than
$7
0
$5 to $7
1
$3 to $5
2
$1 to $3
3
$1 or less
4
Price
Quantity supplied
More than $7
4
$5 to $7
3
$3 to $5
2
Showing Page:
2/2
b)
When the price of each bottle of water is $4, Jerry sells two bottles of water. His
producer surplus is shown as area A in the figure. He receives $4 for his first bottle of
water, but it costs only $1 to produce, so jerry has producer surplus of $3. He also
receives $4 for his second bottle of water, which costs $3 to produce, so he has
producer surplus of $1. Thus Jerry’s total producer surplus is $3 + $1 = $4, which is
the area of A in the figure.
c)
When the price of each bottle of water rises from $4 to $6, Jerry sells three bottles of
water, an increase of one. His producer surplus consists of both areas A and B in the
figure, an increase by the amount of area B. He gets producer surplus of $5 from the
first bottle ($6 price minus $1 cost), $3 from the second bottle ($6 price minus $3
cost), and $1 from the third bottle ($6 price minus $5 price), for a total producer
surplus of $9. Thus producer surplus rises by $5 (which is the size of area B) when the
price of each bottle of water rises from $4 to $6.
Question 6
$1 to $3
1
$1 or less
0

Unformatted Attachment Preview

Question 4 a) Price Quantity demanded More than $7 0 $5 to $7 1 $3 to $5 2 $1 to $3 3 $1 or less 4 b) When the price of each bottle of water is $4, Bert buys two bottles of water. His consumer surplus is shown as area A in the figure. He values his first bottle of water at $7, but pays only $4 for it, so has consumer surplus of $3. He values his second bottle of water at $5, but pays only $4 for it, so has consumer surplus of $1. Thus Bert’s total consumer surplus is $3 + $1 = $4, which is the area of A in the figure. c) When the price of each bottle of water falls from $4 to $2, Bert buys three bottles of water, an increase of one. His consumer surplus consists of both areas A and B in the figure, an increase in the amount of area B. He gets consumer surplus of $5 from the first bottle ($7 value minus $2 price), $3 from the second bottle ($5 value minus $2 price), and $1 from the third bottle ($3 value minus $2 price), for a total consumer surplus of $9. Thus consumer surplus rises by $5 (which is the size of area B) when the price of each bottle of water falls from $4 to $2. Question 5 a) Price Quantity supplied More than $7 4 $5 to $7 3 $3 to $5 2 $1 to $3 1 $1 or less 0 b) When the price of each bottle of water is $4, Jerry sells two bottles of water. His producer surplus is shown as area A in the figure. He receives $4 for his first bottle of water, but it costs only $1 to produce, so jerry has producer surplus of $3. He also receives $4 for his second bottle of water, which costs $3 to produce, so he has producer surplus of $1. Thus Jerry’s total producer surplus is $3 + $1 = $4, which is the area of A in the figure. c) When the price of each bottle of water rises from $4 to $6, Jerry sells three bottles of water, an increase of one. His producer surplus consists of both areas A and B in the figure, an increase by the amount of area B. He gets producer surplus of $5 from the first bottle ($6 price minus $1 cost), $3 from the second bottle ($6 price minus $3 cost), and $1 from the third bottle ($6 price minus $5 price), for a total producer surplus of $9. Thus producer surplus rises by $5 (which is the size of area B) when the price of each bottle of water rises from $4 to $6. Question 6 Name: Description: ...
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.
Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4