Problems and Applications The many identical residents of Whoville love drinking Zlurp. Each resident has the following willingness to pay for the tasty refreshment:
Quantity Willingness to Pay (Dollars)
First bottle 5
Second bottle 4
Third bottle 3
Fourth bottle 2
Fifth bottle 1
Further bottles 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.)
Each Whovillian will consume 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 $ . Her decision total surplus in Whoville by $ .
Mayor Grinch imposes a $1 tax on each bottle of Zlurp.
Consumption per person is now .