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Disequilibrium Continued
- 1.
- 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: Theprice where quantity demanded (Qd) is equal to quantity supplied (Qs). Q P We indicate equilibrium price with “P” and a “star”
- 4. EQUILIBRIUM QUANTITY: Thequantity (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: Thecombination of price (P) and quantity (Q) where there is no economic pressure from extra demand or extra supply. Q P
- 6. DISEQUILIBRIUM STATE: Whenthe 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 followingquestions: 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 followingquestions: 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 auctioncan 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 allthe 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 followingquestion: 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.