Answer to Question #181352 in Microeconomics for taym

Question

It is a hot day, and Ovi is thirsty. Here is the value he places on each bottle of water:

Meanwhile, Emon owns a water pump. Because pumping large amounts of water is

harder than pumping small amounts, the cost of producing a bottle of water rises as

he pumps more. Here is the cost he incurs to produce each bottle of water:

Consider a market in which Ovi is the buyer and Emon is the seller.

a. Use Emon’s supply schedule and Ovi’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 Emon produced and Ovi consumed one fewer bottle of water, what would

happen to total surplus?

d. If Emon produced and Ovi consumed one additional bottle of water, what would

happen to total surplus?

Answer 1

 

a.      It is $6 that will bring the supply and demand to equilibrium.

b.     Consumer surplus is $2, the producer surplus is $4, and total surplus in this equilibrium is $6.

c.      The total surplus would reduce.

d.     The total surplus would increase.