Assume that concerns about tap water potability increase demand for bottled water, and that the new demand (D’ ) is represented by the following: D’ = MSB’ = 7 – 0.1Q What is the new equilibrium quantity (QE’ ) and price (PE’) in the U.S. bottled water market?
Suppose that the U.S. market for bottled water is modeled as follows:
S = MSC = 1 + 0.3Q D = MSB = 5 – 0.1Q,
whereQ is billions of gallons per year and MSC and MSB are in dollars per gallon.
To find the new equilibrium price and quantity, set MSC equal to MSB’, and solve for QE.
MSB’ = MSC
7 – 0.1Q = 1 + 0.3Q
6 = 0.4Q
QE’ = 15 billion gallons
PE’ = 1 + 0.3(15) or 7 – 0.1(15) = $5.5 per gallon
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