1. Two consumers, Casey and Josey, want cheese-stuffed jalapeno peppers for lunch. Two producers, Cara and Jamie, can provide them. The accompanying table shows the consumers’ willingness to pay and the producers’ costs. Note that consumers and producers in this market are not willing to consume or produce more than four peppers at any price.
| Quantity of peppers | Casey’s willingness to pay | Josey’s willingness to pay | Cara’s cost | Jamie’s cost |
| 1st pepper | $0.90 | $0.80 | $0.10 | $0.30 |
| 2nd pepper | 0.70 | 0.60 | 0.10 | 0.50 |
| 3rd pepper | 0.50 | 0.40 | 0.40 | 0.70 |
| 4th pepper | 0.30 | 0.30 | 0.60 | 0.90 |
Use the table to construct a demand schedule and a supply schedule for prices of $0.00, $0.10, and so on, up to $0.90.
A consumer buys each pepper if the price is less than (or just equal to) the consumer’s willingness to pay for that pepper. The demand schedule is constructed by asking how many peppers will be demanded at any given price. A producer will continue to supply peppers as long as the price is greater than, or just equal to, the producer’s cost. The supply schedule is constructed by asking how many peppers will be supplied at any price. The following table illustrates the demand and supply schedules.
Find the equilibrium price and quantity in the market for cheese-stuffed jalapeno peppers.
The quantity demanded equals the quantity supplied at a price of $0.50, the equilibrium price. At that price, a total quantity of five peppers will be bought and sold.
Find consumer, producer, and total surplus in equilibrium in this market.
Casey will buy three peppers and receive a consumer surplus of $0.40 on his first, $0.20 on his second, and $0.00 on his third pepper. Josey will buy two peppers and receive a consumer surplus of $0.30 on her first and $0.10 on her second pepper. Total consumer surplus is therefore $1.00. Cara will supply three peppers and receive a producer surplus of $0.40 on her first, $0.40 on her second, and $0.10 on her third pepper. Jamie will supply two peppers and receive a producer surplus of $0.20 on his first and $0.00 on his second pepper. Total producer surplus is $1.10. Total surplus in this market is therefore $1.00 + $1.10 = $2.10.