Suppose the demand curve for a consumer for coffee is:
Q = 6 – 2P,
Where Q represents the number of cups per day and P is the price of coffee per cup.
Question1. Assume the consumer is on coffee shop 1. Coffee shop 1 charges $2.00 per cup.
- Draw and label demand curve for a cup of coffee for the consumer (please don’t forget to specify the intercept of demand curve for all of the axes).
- How many cups would she drinks a day and how much would she spend a day on coffee shop 1? Elucidate your answer and demonstrate it on graph.
Hint: I would draw the incremental price of drinking a cup of coffee on the shop to show the number of cups the consumer selects.
- What are the consumer surplus and the average price per cup?
Question2. Assume the consumer is on coffee shop 2. Coffee shop 2 provides unlimited cups of coffee for the price of $9.00 per day.
- How many cups would she drinks a day and how much would she spend a day on coffee shop 2? Elucidate your answer and demonstrate it on the graph.
Hint: Again, I would draw the demand curve and the incremental price of drinking a cup of coffee on the shop to show the number of cups consumer selects.
- What are the consumer surplus and the average price per cup?
Question3. Assume the consumer can choose either coffee shop 1 or coffee shop 2, but not both.
- Assuming that other things (like location, quality of coffee, and so forth) are the same, which coffee shop would the customer desire? Will the difference in average price per cup affect your choice between coffee shop 1 and 2? Elucidate your answer.
- How, if at all, would your answer above change if coffee shop 2 provides unlimited cups of coffee for the price of $7.00 per day? Elucidate your answer.