Pearl Exchange

Activity

1
 Voluntary Exchange Terms
Consumer Surplus is the difference
between what you are willing to pay
and what you actually pay.
CS = Buyer’s Maximum – Price
Producer’s Surplus is the difference
between the price the seller received
and how much they were willing to sell
it for.
PS = Price – Seller’s Minimum
2
Putting Supply and
Demand Together!!!

3
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Demand P Supply
S Schedule
Schedule $5
P Qd 4
P Qs
$5 10 $5 50
3
$4 20 $4 40
2
$3 30 $3 30
$2 50 1 $2 20
D
$1 80 o 10 20 30 40 50 60 70 80 Q
$1 10
4
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Demand P Supply
S Schedule
Schedule $5
P Qd 4
P Qs
$5 10 $5 50
3 Equilibrium Price = $3
$4 20 (Qd=Qs) $4 40
2
$3 30 $3 30
$2 50 1 $2 20
D
$1 80 o $1 10
10 20 30 40 50 60 70 80 Q
Equilibrium Quantity is 30 5
Supply and Demand are put together to determine
equilibrium price and equilibrium quantity
Demand P Supply
S Schedule
Schedule $5
P Qd 4
P Qs
$5 10
3
What if the price $5 50
$4 20 $4 40
2 increases to $4?
$3 30 $3 30
$2 50 1 $2 20
D
$1 80 o $1 10
10 20 30 40 50 60 70 80 Q
6
 At $4, there is disequilibrium. The quantity
demanded is less than quantity supplied.
Demand P Supply
S Schedule
Schedule $5 Surplus
(Qd<Qs)
P Qd 4
P Qs
$5 10 How much is the $5 50
3 surplus at $4?
$4 20 Answer: 20 $4 40
2
$3 30 $3 30
$2 50 1 $2 20
D
$1 80 o $1 10
10 20 30 40 50 60 70 80 Q
7
 How much is the surplus if the price is $5?
Demand P Supply
S Schedule
Schedule $5
P Qd 4
P Qs
$5 10
3
What if the Answer:
price 40 $5 50
$4 20 $4 40
2 decreases to $2?
$3 30 $3 30
$2 50 1 $2 20
D
$1 80 o $1 10
10 20 30 40 50 60 70 80 Q
8
 At $2, there is disequilibrium. The quantity
demanded is greater than quantity supplied.
Demand P Supply
S Schedule
Schedule $5
P Qd 4
P Qs
$5 10 How much is the $5 50
3 shortage at $2?
$4 20 Answer: 30 $4 40
2
$3 30 $3 30
Shortage
$2 50 1 (Qd>Qs) D $2 20
$1 80 o $1 10
10 20 30 40 50 60 70 80 Q
9
How much is the shortage if the price is $1?
Demand P Supply
S Schedule
Schedule $5
P Qd 4
P Qs
$5 10 Answer: 70 $5 50
3
$4 20 $4 40
2
$3 30 $3 30
$2 50 1 $2 20
D
$1 80 o $1 10
10 20 30 40 50 60 70 80 Q
10
 The FREE MARKET system automatically
pushes the price toward equilibrium.
Demand P Supply
S Schedule
Schedule $5
When there is a
P Qd 4
surplus, producers P Qs
lower prices
$5 10 $5 50
3 When there is a
$4 20 shortage, producers $4 40
2 raise prices
$3 30 $3 30
$2 50 1 $2 20
D
$1 80 o $1 10
10 20 30 40 50 60 70 80 Q
11