Domestic water in Ireland is free and the average family consumes 15,000 litres a month. However, if Irish Water charged €50 per 1000 litres it becomes cheaper for communities to truck in the water and none of Irish waters supply is consumed. (a) Calculate the total benefit and marginal benefit from water when a residence consumes 10,000 litres a month. What is the family’s buyer surplus? (b) Suppose that Irish Water starts to charge for its supply at price of €5 per 1,000 litress. How much water would the family buy and how much would it spend each month? (c) What is the maximum that Irish Water could charge the family for the consumption in (part b)? (d) What pricing structure would Irish water pursue and was the assumption that Irish Water would pursue higher prices correct and why? (e) Suppose that, with metering, different residences spend different amounts on water each month. Does this imply that the residences that spend more get more benefit from water?
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