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Consider two individuals considering how many iced coffee drinks to buy during the coming week. Person A is willing to pay a maximum of €10 for the first drink, €8 for the second, €5 for the third, and €1 for the fourth. Person B would be willing to pay a maximum of €12, €10, €8, €6, €4, and €2 for their first through sixth drinks, respectively. Neither person would pay anything for any more drinks during the week. Assume that the price of an iced coffee drink is €4.50.
(a) For each person determine how many drinks will be bought during the week. (b) For each person determine their total surplus at this quantity, i.e. find the total difference between what the person is willing to pay and what they actually pay for the drinks they buy. Also, explain why this total surplus is the maximum surplus for each person given the price. (c) Describe the total demand curve for these two people, i.e. describe how many drinks these two people will buy in total for any possible price. (d) If the temperature for the coming week turns out to be much lower then originally expected then what would you expect to happen to the maximum amount each person is willing to pay for an iced coffee drink? What is the likely effect of this change on the total amount of iced coffee drinks purchased during the week at the given price?
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