Describe the total demand curve

Reference no: EM13197414

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?

Reference no: EM13197414

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