# 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
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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