00:01
Hello in this video i will be explaining the following.
00:04
So we have the heaville willingness to buy chart on the side and how much they're willing to pay for each drink.
00:12
So now we will answer part a through e.
00:14
So a is the production cost is $1 .50, how many bottles consume, and each person's consumer surplus.
00:25
So as you more bottles available, they're less likely to pay.
00:36
So they're willing to buy four bottles at most.
00:42
They won't buy the fifth because it costs higher than their willingness to pay.
00:48
So for four bottles, each resident is willing to pay the $14 because that comes from our five plus, five plus three.
01:08
Plus two but they would only have to really pay six dollars because the one point five times four so the consumer surplus would be eight dollars and that's going to come from a 14 minus six so part b there's pollution and then external cost of one dollars the total surplus per person so now the new cost is $2 .50.
01:57
So the total cost of the four bottles would now be 2 .5 times 4, which is 10.
02:12
So the total surplus would be the 14 minus 10, meaning a 4.
02:26
Four dollar surplus.
02:29
So next we have c, cindy's welfare and affect the total surplus.
02:34
So cindy decides to consume one less bottle, which means she buys three bottles instead of four.
02:43
She'd be willing to pay $12 because that would come from our five plus four plus three.
02:51
And the total cost would be total cost would be our i'm going to move over a little br3 times 2 .5 which would equal $7 .50 cents so her welfare is welfare is $4 .50 which increases the total surplus increases total surplus by 50 cents.
03:43
All right, next we have part d.
03:49
So the price, like i said already, is increased to $2 .50.
03:54
So people are only willing to buy three bottles...
