Consider a market in which Gnter from Problem 4 is the buyer and Maria from Problem 5

Consider a market in which Günter from Problem 4 is the buyer and Maria from Problem 5 is the seller.

a. Use Maria’s supply schedule and Günter’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 Maria produced and Günter consumed one fewer bottles of water, what would happen to total surplus?

d. If Maria produced and Günter consumed one additional bottle of water, what would happen to total surplus?

Data from Problem 4

It is a hot day, and Günter is thirsty. Here is the value, in money terms, he places on a bottle of water:

Data from Problem 5

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

Transcribed Image Text:

Value of first bottle 7 Value of second bottle 5 Value of third bottle 3 Value of fourth bottle 1