The city decides to change the pricing in two ways. One, it adds a monthly (fixe

Question

The city decides to change the pricing in two ways. One, it adds a monthly (fixed) utility fee of $5. (You can assume this is so small relative to the Addams family income that it does not materially impact their demand curve from the question above.) Two, it introduces a second price tier, so that the price is $6 per thousand gallons per month for the first 7 thousand gallons per month, but then increases to $20 per gallon for every additional thousand gallons per month.

How do these changes impact the Addams family? (Check all of the answers that are correct--there MAY be more than one.)

Explanation / Answer

Consider the given problem here, the price of water has changed by 2 ways, so we can see that the price of water has increased => the consumption of water will reduced and the water bill will increased and the consumer surplus will also be reduced.

So 1st and 4th option will be the possible option.

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