Disequilibrium Continued

1. DISEQUILIBRIUM
(continued)

2. 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!

3. 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”

4. 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”

5. EQUILIBRIUM STATE:
The combination of price (P) and
quantity (Q) where there is no
economic pressure from extra demand
or extra supply.
Q
P

6. DISEQUILIBRIUM STATE:
When the market is outside of
equilibrium. In other words, when there
is a surplus or shortage of goods.
Qs
P
P
Qd Qs
Qd

7. Qs
P
Qd
Answer the following
(Don’t answer question:
out loud!)
Does this graph
represent a
a surplus or a
shortage?
Does this graph
represent a
a surplus or a
shortage?
and…
and…
How do you
know?
How do you
know?

8. Qs
P
Qd
Answer the following
(Don’t answer question:
out loud!)
Does this graph
represent a
a surplus or a
shortage?
and…
How do you
know?

9. Answer the following questions:
Classroom Projectors
140
120
100
80
60
40
20
100 500 1000 1500
S
D
Q (in thousands)
P
What is the equilibrium price?
What is the equilibrium quantity?

10. Answer the following questions:
Name a price that would result in a shortage.
Name a price that would result in a surplus.
Classroom Projectors
140
120
100
80
60
40
20
100 500 1000 1500
S
D
Q (in thousands)
P

11. 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¢

12. 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

13. 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

14. * An auction can potentially eliminate consumer
surplus for the individual who wins.

15. 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.

16. These are all the people demanding the product
P
Q
S
D
at a price higher than equilibrium
These are all the
people willing to
supply the product
at a price
lower than
equilibrium

17. 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.
!

18. Q
S
D
If the producer was willing
to sell at $50, but he
sells at the price of
100
50
$100, he receives
a producer surplus of
$50.

19. 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.