Problems & Applications (Ch 10) Quantity First bottle Second bottle Third bottle Fourth bottle Fifth bottle Further bottles (Dollars) 10 Each Whovillian will consume 8 6 4 2 The cost of producing a bottle of Zlurp is $4.50, and the competitive suppliers sell it at this price. (The supply curve is horizontal.) 0 bottles and receive a consumer surplus of $ Producing Zlurp creates pollution. Each bottle has an external cost of $2. Taking this additional cost into account, total surplus per person in the allocation you previously determined decreases to $ Based on your calculations, you 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 S Mayor Grinch imposes a $2 tax on each bottle of Zlurp. Her decision Consumption per person is now bottles. This yields a per-person consumer surplus of $ and government revenue of $ person external cost of $ this policy. (Hint: Total surplus is equal to consumer surplus minus the external cost of pollution plus government revenue.) not including the cost of pollution, a per- per person. Total surplus per person is now S as a result of support the mayor’s policy because it total surplus in Whoville welfare compared to before the tax.
