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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?
Principles of Macroeconomics (Mind...
Principles of Macroeconomics (Mind...
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):
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:
| Price | Quantity demanded | Quantity supplied |
| More than $7 | 0 | 4 |
| $5 to $7 | 1 | 3 |
| $3 to $5 | 2 | 2 |
| $1 to $3 | 3 | 1 |
| $ or less | 4 | 0 |
We can form the new tab...
Sub part (b):
Subpart (c):
Subpart (d):
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