1. Explain how buyers' willingness to pay, consumer surplus, and the demand curve are related.
2. Explain how sellers' costs, producer surplus, and the supply curve are related.
3. Melissa buys an iPhone for $240 and gets consumer surplus of $160. (A) What is her willingness to pay? (B) If she had bought the iPhone on sale for $180, what would her consumer surplus have been? (C) If the price of an iPhone were $500, what would her consumer surplus have been?
4. An early freeze in California sours the lemon crop. Explain what happens to consumer surplus in the market for lemons. Explain what happens to consumer surplus in the market for lemonade. Illustrate your answers with diagrams. (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. (C) If the price falls to $2, how does quantity demand change? How does Bert's consumer surplus change? Show these changes in your graph.