Final answer:
In this situation, the equilibrium price of water rises to $30 per gallon. The consumer surplus and producer surplus can be identified on the supply and demand curves. A price ceiling of $15 per gallon leads to changes in consumer and producer surplus, as well as a deadweight loss. There is a tradeoff between efficiency and equity in this market, where efficiency relates to maximizing overall social welfare and equity relates to fairness in resource distribution.
Step-by-step explanation:
a) In the situation where the equilibrium price of water rises to $30 per gallon, the equilibrium point is where the supply and demand curves intersect. The consumer surplus is the area above the equilibrium price and below the demand curve, while the producer surplus is the area below the equilibrium price and above the supply curve.
b) When economists say producer surplus, they are referring to the additional income that producers receive above the minimum price they are willing to produce a good.
c) If a price ceiling of $15 per gallon is imposed on water, consumer surplus is the area above the price ceiling and below the demand curve, while producer surplus is the area below the price ceiling and above the supply curve. There is a deadweight loss, which represents the loss in total surplus due to allocative inefficiency.
d) Efficiency refers to the allocation of resources that maximizes overall social welfare. Equity refers to the fairness or justice in the distribution of resources and benefits. In this market, applying efficiency means ensuring that the water shortage is allocated to those who value it the most and are willing to pay the highest price. Applying equity means considering the needs of lower-income consumers and ensuring they have access to water at an affordable price.