Suppose Ernie is the only seller in the market for bottled water and Bert is the only buyer. The following lists show the value Bert places on a bottle of water and the cost Ernie incurs to produce each bottle of water:
Bert's Value
Value of first bottle: $7
Value of second bottle: $5
Value of third bottle: $3
Value of fourth bottle: $1
Ernie's Costs
Cost of first bottle: $1
Cost of second bottle: $3
Cost of third bottle: $5
Cost of fourth bottle: $7
The following table shows their respective supply and demand schedules:
Price Quantity Supplied Quantity Demanded
More than $7 4 0
$5 to $7 3 1
$3 to $5 2 2
$1 to $3 1 3
$1 or less 0 4
Use Ernie's supply schedule and Bert's demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. Enter these values in the following table.
Price Quantity Supplied Quantity Demanded
2
4
6
A price of brings supply and demand into equilibrium.
At the equilibrium price, consumer surplus is, producer surplus is, and total surplus is.
If Ernie produced and Bert consumed one less bottle of water, total surplus would .
If instead, Ernie produced and Bert consumed one additional bottle of water, total surplus would .
