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Consider a hypothetical market for bottled water where the market demand and market supply equations are:
QD = -50 P + 1540 and QS = 100 P + 200,
Now, suppose the change in standards results in a new market supply of QS' = 400 P - 350, with no change in market demand.
a. Determine the new PE' and QE' for bottled water. Does your results agree with your intuitive answer to Question 2?
b. Graphically illustrate the market for bottled water before and after the change in labeling standards. Be sure to label all relevant points.
c. Compare the values of consumer surplus and producer surplus before and after the change in labeling standards. Is this result expected? Why or why not?
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