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Consider a market in which Bert from problem 4 is the buyer and Ernie from problem 5 is the seller. a. Use Ernie’s supply schedule and Bert’s demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. Which of these prices brings supply and demand into equilibrium? b. What are consumer surplus, producer surplus, and total surplus in this equilibrium? c. If Ernie produced and Bert consumed one fewer bottle of water, what would happen to total surplus? d. If Ernie produced and Bert consumed one additional bottle of water, what would happen to total surplus?

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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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Section
BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 7, Problem 6PA
Textbook Problem
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Consider a market in which Bert from problem 4 is the buyer and Ernie from problem 5 is the seller.

a. Use Ernie’s supply schedule and Bert’s demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. Which of these prices brings supply and demand into equilibrium?

b. What are consumer surplus, producer surplus, and total surplus in this equilibrium?

c. If Ernie produced and Bert consumed one fewer bottle of water, what would happen to total surplus?

d. If Ernie produced and Bert consumed one additional bottle of water, what would happen to total surplus?

Sub part (a):

To determine
Equilibrium price and quantity.

Explanation of Solution

We have seen the demand schedule and the supply schedule of the consumer and the producer in the former questions. They can be combined together as follows:

PriceQuantity demandedQuantity supplied
More than $704
$5 to $713
$3 to $522
$1 to $331
$ or less40

We can form the new tab...

Sub part (b):

To determine
The consumer surplus and the producer surplus of water bottles.

Subpart (c):

To determine
The consumer surplus and the producer surplus of water bottles.

Subpart (d):

To determine
Total surplus of water bottles.

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