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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
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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: ...
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