Post on 08-Jul-2015
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DISEQUILIBRIUM(continued)
WARM UP:1. Write your name on the small piece of paper
on your desk. !
2. When I say “GO” - find 4 different partners: sign your names on each other’s paper next to
one of the keywords: “opportunity cost,” “incentive,” and “demand.”
!
* You are not allowed to trade signatures with someone sitting next to you!
EQUILIBRIUM PRICE:The price where quantity
demanded (Qd) is equal to quantity supplied (Qs).
Q
P
We indicate equilibrium
price with “P” and a “star”
EQUILIBRIUM QUANTITY:The quantity (Q) at which quantity
demanded (Qd) and quantity supplied (Qs) are equal at a certain price (P).
Q
P
We indicate equilibrium
quantity with “Q” and a
“star”
EQUILIBRIUM STATE:The combination of price (P) and quantity (Q) where there is no
economic pressure from extra demand or extra supply.
Q
P
DISEQUILIBRIUM STATE:When the market is outside of
equilibrium. In other words, when there is a surplus or shortage of goods.
Qs
P
Qd Qd
P
Qs
Qs
P
Qd
(Don’t answer out loud!)
Does this graph represent a
a surplus or a shortage? and…
How do you know?
Does this graph represent a
a surplus or a shortage? and…
How do you know?
Answer the following question:
Qs
P
Qd
(Don’t answer out loud!)
Does this graph represent a
a surplus or a shortage? and…
How do you know?
Answer the following question:
Classroom Projectors
20406080100120140
100 500 1000 1500
S
D
Q (in thousands)
P
Answer the following questions:
What is the equilibrium price? What is the equilibrium quantity?
Classroom Projectors
20406080100120140
100 500 1000 1500
S
D
Q (in thousands)
P
Answer the following questions:
Name a price that would result in a shortage. Name a price that would result in a surplus.
CONSUMER SURPLUS:(buyer)
The benefit consumers receive from buying a good/service, measured by what the individuals
would have been willing to pay minus the amount they actually paid.
I wanted to buy an apple, and I was willing to pay $3.00 to get it. I bought an apple for $2.50!
My consumer surplus for this purchase is .50¢
PRODUCER SURPLUS:(seller)
The benefit producers receive from selling a good/service, measured by the price they
actually received minus the price they would have been willing to accept.
I wanted to sell an apple, and I was willing to sell it for $1.00. I sold an apple for $2.50!
My producer surplus for this sale is $1.50
CONSUMER & PRODUCER SURPLUS:It doesn’t represent
actual money we have saved or made, because the buyer has still spent money and the seller
has not made any additional money.
Instead, it’s a theoretical benefit we receive.
We’re all happy because we have more money than we might
have had if the transaction went differently
* An auction can potentially eliminate consumer surplus for the individual who wins.
P
Q
S
D
This area on the graph represents
consumer surplus for the whole market
This area on the graph represents producer surplus
Both areas combined is called social surplus.
P
Q
S
D
These are all the people demanding the product at a price higher than equilibrium
These are all the people willing to
supply the product at a price lower than equilibrium
Q
S
D
P2
P
!
If the price is at equilibrium, All of the people who
were willing to pay more have received a
consumer surplus.
A person willing to pay the higher price
of P2 saved the difference between
P2 and the current market price.
!
Q
S
D
50
100
If the producer was willing to sell at $50, but he sells at the price of $100, he receives
a producer surplus of $50.
Answer the following question:
Calculate the consumer and producer surplus in this sale:
I sold a car for $13,500.
!
I was willing to sell it
as cheap as $11,000!
I bought a car for
$13,500! !
I was willing to buy it for up to $14,000.