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4. It is a hot day, and Bert is thirsty. Here is the value he places on each bottle of water:
a. From this information, derive Bert’s demand schedule. Graph his demand curve for bottled water.
b. 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
When the price of a bottle of water is $4, Bert buys two bottles of water. His consumer surplus is
shown as area A in the figure. He values his first bottle of water at $7, but pays only $4 for it, so has
consumer surplus of $3. He values his second bottle of water at $5, but pays only $4 for it, so has
consumer surplus of $1. Thus, Bert’s total consumer surplus is $3 + $1 = $4, which is the area of A in
the figure.
. c. If the price falls to $2, how does quantity demanded change? How does Bert’s consumer surplus change? Show these changes in
your graph.
When the price of a bottle of water falls from $4 to $2, Bert buys three bottles of water, an increase
of one. His consumer surplus consists of both areas A and B in the figure, an increase in the amount
of area B. He gets consumer surplus of $5 from the first bottle ($7 value minus $2 price), $3 from
the second bottle ($5 value minus $2 price), and $1 from the third bottle ($3 value minus $2 price),
for a total consumer surplus of $9. Thus, consumer surplus rises by $5 (which is the size of area B)
when the price of a bottle of water falls from $4 to $2.
5. 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:
a. From this information, derive Ernie’s supply schedule. Graph his supply curve for bottled water.
b. 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
c. If the price rises to $6, how does quantity supplied change? How does Ernie’s producer surplus change? Show these changes in your
graph.