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.
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
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)