Answer
a) 4 dollars
b) Consumer surplus is 4 dollars, and producer surplus is 4 dollars. Thus, total surplus is 8 dollars.
c) Total surplus would decrease to 6 dollars.
d) Total surplus would decrease to 6 dollars.
Work Step by Step
a) The only price at which quantity demanded and quantity supplied are the same is 4 dollars.
b) Bert would be willing to pay 7 dollars for his first bottle but pays only 4 dollars. Bert would be willing to pay 5 dollars for his second bottle but pays only 4 dollars. His surplus from the first bottle is 4 dollars (7-4), and his surplus from the second bottle is a dollar (5-4).
Ernie would be willing to receive 1 dollar for his first bottle but earns 4 dollars. Ernie would be willing to receive 3 dollars for his second bottle but earns 4 dollars. His surplus from the first bottle is 3 dollars (4-1), and his surplus from the second bottle is a dollar (4-3).
c) If Bert consumed one fewer bottle of water, he would consume a bottle of water. If Ernie produced one fewer bottle of water, he would produce one bottle of water. Bert's surplus would be 3 (7-4), and Ernie's surplus would be 3 (4-1).
d) If Bert consumed one additional bottle of water, he would consume three bottles of water. Ernie would also produce three bottles of water. Bert's surplus would be 3 (7-4 for the first bottle, 5-4 for the second bottle, and 3-4 for the third bottle). Ernie's surplus would also be 3 (4-1 for the first bottle, 4-3 for the second bottle, and 4-5 for the third bottle).
