Answer to Question #195702 in Finance for Adekunle-Ismail Ja

Question #195702

Question 2. 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

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 purchases? Show Bert’s consumer surplus in your graph.

Expert's answer

Represent the demand Schedule as follows:

Represent the graph as follows :

If the price of the bottle of water is $4, person B buys 2 bottles (as per the demand Schedule)

Hence the Consumer Surplus ;

=Price willing to pay Price actually paid

=((7+5) 4×2)=$4

Consumer Surplus =$4. (AEGHI is the Consumer Surplus in the above graph)

c) Consumer Surplus =(7+5+3) (3×2)=$9

(The Consumer Surplus is ABCJG)

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