CH4: Changes in Demand & Supply Flashcards
How are consumer and producer surplus shown at equilibrium?
Consumer surplus is the area above the equilibrium price and below the demand curve. Producer surplus is the area below the equilibrium price and above the supply curve.
Consumer surplus is the triangle above the equilibrium price and below the demand curve (DP1E); producer surplus is the triangle below the equilibrium price and above the supply curve (SP1E). Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay. It represents a gain to consumers. Producer surplus is the difference between the price producers receive for a good and the minimum price at which they are willing to supply it.
What causes shifts in the demand curve and what are the effects?
An increase in demand shifts the demand curve to the right, raising both the equilibrium price and the equilibrium quantity, ceteris paribus. / A decrease in demand shifts the demand curve to the left, leading to a lower equilibrium price and quantity, ceteris paribus.
What causes shifts in the supply curve and what are the effects?
An increase in supply shifts the supply curve to the right, resulting in a lower equilibrium price and a higher equilibrium quantity. / A decrease in supply shifts the supply curve leftward, leading to a higher equilibrium price and a lower equilibrium quantity.
Rising costs of production, lower productivity, and increases in prices of alternative or joint products.
what are simultaneous changes in demand and supply?
When both demand and supply change, predicting the outcome on price and quantity depends on the relative magnitude of shifts.
For example, if demand increases and supply decreases, price will rise, but quantity may increase, decrease, or stay the same.
what causes shifts in the demand curve?
Factors include an increase in the price of substitute goods, higher consumer income, positive changes in consumer preferences, or expectations of future price increases.
what is a price ceiling and what are its effects?
A price set below equilibrium to make goods affordable (e.g., bread). Leads to excess demand and shortages. Can cause waiting lists, rationing, and black markets.
what is the interaction between related markets?
A change in one market can affect another.
E.g., a cost increase in motorcar production reduces quantity, which lowers demand for tyres, decreasing their price and quantity.
which factors can increase supply?
Falling prices of alternative or joint products, reduced input costs, improved productivity, and advancements in technology.
