The following table presents the marginal benefit of consuming six can of Pepsi for an individual consumer. Units of Pepsi Marginal Benefit (MB),

in $ value First can 10

Second can 5

Third can 4

Fourth can 0

Fifth can -6

Sixth can –10

a- As the table suggest, MB of consuming Pepsi is falling for this consumer. Does this make sense? Why or why not? Specifically, discuss whether or not you need additional assumptions in order to make sense of these numbers. Hint: We do need additional assumptions that were discussed in the notes. You have to mention those here.

b- Illustrate the relationship between units of Pepsi consumed (QD) and the price consumer willing topay for each unit (WTP) on a graph, where the Y-axis denotes WTP, and X-axis indicates quantity.

c- Assume that the price of a can of Pepsi is 4$. How many can of Pepsi this individual is going to buy? You can illustrate your answer with the help of the graph. Show your calculations as a part of your answer. Giving me just a number is not enough; you should show me how you got that number.

d- For the price of 4$ and given your answer to part (e), find the consumer’s total spending and surplus. Show your calculations as a part of your answer. Giving me just a number is not enough; you should show me how you got that number.

e- Concern with the public health effects of sugar consumption, the government imposes a 5$ tax on sugary soda. This tax increases the price of a can of Pepsi to 9$. How does this tax policy affect our consumer? Precisely, determine the change in the number of cans demanded, change in consumer surplus, and change in consumer total spending resulting from this tax. Show your calculations as a part of your answer. Giving me just a number is not enough; you should show me how you got that number. Note that the question is asking you to determine the “change,” which means that you should calculate the values of Qd, Consumer surplus (CS), and Total Spending (TS) with and without the tax and determine how much they are changing as a result of the tax policy. Also remember that Change=New Values-Old Values, which for this particular question means that [Change=After tax values efore tax values].

f- How can we induce this individual to buy and consume six can of Pepsi? Explain and Show your calculations as a part of your answer. Giving me just a number is not enough; you should show me how you got that number.