Reconsider the implications of the revised labeling standards discussed in Question 2 in the context of the
Question:
Reconsider the implications of the revised labeling standards discussed in Question 2 in the context of the hypothetical market for bottled water modeled in the text. Recall that the market demand and market supply equations are
QD = –100P + 1,150 and QS = 400 P – 100,
where PE = $2.50 and QE = 900.
Now, suppose the change in standards results in a new market supply of QS’ = 400P – 350, with no change in market demand.
a. Determine the new PE’ and QE’ for bottled water. Do your results agree with your intuitive answer to Question 2?
b. Graphically illustrate the market for bottled water before and after the change in labeling standards. Be sure to label all relevant points.
c. Compare the values of consumer surplus and producer surplus before and after the change in labeling standards. Is this result expected? Why or why not?
Step by Step Answer:
a P E 300 and Q E 850 Yes b They should present a supply and demand model ...View the full answer
Environmental Economics and Management Theory, Policy and Applications
ISBN: 978-1111826673
6th edition
Authors: Scott J. Callan, Janet M. Thomas
