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20 download_doc-1.php - Surplus Shortage Chapter 2 I The...

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Shortage Surplus Chapter 2 I. The demand and supply curves a. Demand i. Is generated by each consumer’s willingness to pay for the good b. Supply i. Is generated by each suppliers cost to produce the good c. Equilibrium i. Where the total ‘profits’ of the buyers and sellers are maximized 1. The intersection of the supply and demand curves ii. Q d (p*) = Q s (p*) II. Consumer and producer surpluses a. Consumer surplus i. The difference between a consumer’s willingness to pay for a good and the price they pay 1. (willing to pay – actual price) b. Producer Surplus i. The difference between the price and (marginal) cost of production for a producer 1. (actual price – willing to produce) III. Quantity Demanded vs. Change in Demand i. Change in Quantity Demanded
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1. Changes in the price of a good lead to a change in the quantity demanded for that good 2. Movement along a given curve ii. Change in Demand 1. Shifts occur when demand increases because of factors other than price changes 2. The curve shifts IV.Shift Factors of Demand
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