ps4 answers - Chapter 7 3. a. Bert's demand schedule is:...

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Chapter 7 3. a. Bert’s demand schedule is: Price Quantity Demanded More than $7 0 $5 to $7 1 $3 to $5 2 $1 to $3 3 $1 or less 4 Bert’s demand curve is shown in Figure 9. Figure 9 b. When the price of a 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 a 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 a bottle of water falls from $4 to $2.
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4. a. Ernie’s supply schedule for water is: Price Quantity Supplied More than $7 4 $5 to $7 3 $3 to $5 2 $1 to $3 1 Less than $1 0 Ernie’s supply curve is shown in Figure 10. Figure 10 b. When the price of a bottle of water is $4, Ernie 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 Ernie 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 Ernie’s total producer surplus is $3 + $1 = $4, which is the area of A in the figure. c. When the price of a bottle of water rises from $4 to $6, Ernie 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 a bottle of water rises from $4 to $6. 5. a. From Ernie’s supply schedule and Bert’s demand schedule, the quantity
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demanded and supplied are: Price Quantity Supplied Quantity Demanded $ 2 1 3 4 2 2 6 3 1 Only a price of $4 brings supply and demand into equilibrium, with an equilibrium quantity of 2. b. At a price of $4, consumer surplus is $4 and producer surplus is $4, as shown in problems 3 and 4. Total surplus is $4 + $4 = $8. c.
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This note was uploaded on 09/02/2009 for the course GEO 302C taught by Professor Yang during the Spring '08 term at University of Texas at Austin.

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ps4 answers - Chapter 7 3. a. Bert's demand schedule is:...

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