Answer to Question #276395 in Microeconomics for tanha

Question

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?

Answer 1

a. The equilibrium occurs when quantity demanded equals quantity supplied.

b. In equilibrium total surplus is maximized and equals the sum of comsumer and producer surpluses.

c. If Ernie produced and Bert consumed one fewer bottle of water, then total surplus will decrease.

d. If Ernie produced and Bert consumed one additional bottle of water, then total surplus will decrease too.