The many identical residents of Whoville love drinking Zlurp. Each resident has the following willingness to pay for the tasty refreshment: Quantity First bottle Second bottle Third bottle Fourth bottle Fifth bottle Further bottles Willingness to Pay (Dollars) 5 4 3 2 Each Whovillian will consume 1 0 The cost of producing a bottle of Zlurp is $1.50, and the competitive suppliers sell it at this price. (The supply curve is horizontal.) 4 bottles and receive a consumer surplus of Producing Zlurp creates pollution. Each bottle has an external cost of $1. Taking this additional cost into account, total surplus per person in the allocation you previously determined decreases to Cindy Lou Who, one of the residents of Whoville, decides on her own to reduce her consumption of Zlurp by 1 bottle. Cindy's consumer surplus (ignoring the cost of pollution she experiences) is now by $0.50. $8.00. Mayor Grinch imposes a $1 tax on each bottle of Zlurp. Based on your calculations, you would $4.00 $7.50. Her decision increases total surplus in Whoville Consumption per person is now 3 bottles. This yields a per-person consumer surplus of $4.50 not including the cost of pollution, a per- person external cost of $3.00, and government revenue of $3.00 per person. Total surplus per person is now $1.50 as a result of this policy. (Hint: Total surplus is equal to consumer surplus minus the external cost of pollution plus government revenue.) support the mayor's policy because it increases welfare compared to before the tax.
The many identical residents of Whoville love drinking Zlurp. Each resident has the following willingness to pay for the tasty refreshment: Quantity First bottle Second bottle Third bottle Fourth bottle Fifth bottle Further bottles Willingness to Pay (Dollars) 5 4 3 2 Each Whovillian will consume 1 0 The cost of producing a bottle of Zlurp is $1.50, and the competitive suppliers sell it at this price. (The supply curve is horizontal.) 4 bottles and receive a consumer surplus of Producing Zlurp creates pollution. Each bottle has an external cost of $1. Taking this additional cost into account, total surplus per person in the allocation you previously determined decreases to Cindy Lou Who, one of the residents of Whoville, decides on her own to reduce her consumption of Zlurp by 1 bottle. Cindy's consumer surplus (ignoring the cost of pollution she experiences) is now by $0.50. $8.00. Mayor Grinch imposes a $1 tax on each bottle of Zlurp. Based on your calculations, you would $4.00 $7.50. Her decision increases total surplus in Whoville Consumption per person is now 3 bottles. This yields a per-person consumer surplus of $4.50 not including the cost of pollution, a per- person external cost of $3.00, and government revenue of $3.00 per person. Total surplus per person is now $1.50 as a result of this policy. (Hint: Total surplus is equal to consumer surplus minus the external cost of pollution plus government revenue.) support the mayor's policy because it increases welfare compared to before the tax.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The many identical residents of Whoville love drinking Zlurp. Each resident has the following willingness to pay for the tasty refreshment:
Quantity
First bottle
Second bottle
Third bottle
Fourth bottle
Fifth bottle
Further bottles
Willingness to Pay
(Dollars)
5
4
3
2
Each Whovillian will consume
1
0
The cost of producing a bottle of Zlurp is $1.50, and the competitive suppliers sell it at this price. (The supply curve is horizontal.)
4 bottles and receive a consumer surplus of
Producing Zlurp creates pollution. Each bottle has an external cost of $1.
Taking this additional cost into account, total surplus per person in the allocation you previously determined decreases to
Cindy Lou Who, one of the residents of Whoville, decides on her own to reduce her consumption of Zlurp by 1 bottle.
Cindy's consumer surplus (ignoring the cost of pollution she experiences) is now
by $0.50.
$8.00.
Mayor Grinch imposes a $1 tax on each bottle of Zlurp.
Based on your calculations, you would
$4.00
$7.50. Her decision increases total surplus in Whoville
Consumption per person is now 3 bottles. This yields a per-person consumer surplus of $4.50 not including the cost of pollution, a per-
person external cost of
$3.00, and government revenue of $3.00 per person. Total surplus per person is now $1.50 as a result of
this policy. (Hint: Total surplus is equal to consumer surplus minus the external cost of pollution plus government revenue.)
support the mayor's policy because it increases welfare compared to before the tax.
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