Question

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

Value of first bottle- $7

Value of second bottle- $5

Value of third bottle- $3

Value of fourth bottle-$1

From this information, derive Bert’s demand schedule. Graph his demand curve for bottled water.

If the price of a bottle of water is $4, how many bottles does Bert buy? How much consumer surplus does Bert get from his purchases? Show Bert’s consumer surplus in your graph.

If the price falls to $2, how does quantity demanded change? How does Bert’s consumer surplus change? Show these changes in your graph.

Ernie 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:

Value of first bottle- $1

Value of second bottle- $3

Value of third bottle- $5

Value of fourth bottle-$7

From this information, derive Ernie’s supply schedule. Graph his supply curve for bottled water.

If the price of a bottle of water is $4, how many bottles does Ernie produce and sell? How much producer surplus does Ernie get from these sales? Show Ernie’s producer surplus in your graph.

If the price rises to $6, how does quantity supplied change? How does Ernie’s producer surplus change? Show these changes in your graph.

Answer 1