Reconsider the implications of the revised labeling standards discussed in Question 2 in the context of the hypothetical market for bottled water mod- eled in the text. Recall that the market demand and market supply equations are QD ¼ -100P þ 1; 150 and QS ¼ 400P - 100; where PE = $2.50 and QE = 900. water. Do your results agree with your intuitive answer to Question 2?
a. Graphically illustrate the market for bottled water before and after the change in labeling standards. Be sure to label all relevant points.
b. 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?