Consumer and Producer Surplus - Note this

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How is demand increase shown
right shift in demand
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Supply increase
demand = higher equilibrium output -= higer pricees
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Consumer
Consumer = increase in demand shows they are willing to pay a higher price for the same quantity bought / consumer surplus rises JGH to MKL 5b)
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Amount of consumer and producer surplus
change if either demand or supply change
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If supply increases
= for suppliers will experience an increase in producer surplus (JKH to FGM 6a) = higher equilibrium output but lower prices Consumer surplus increases as a result (HKL to MGL 6b)
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Equilibrium = unlikely to be the most desirable price in the markets
Most desirable price depend on what you define as desirable May be what leads to greater economic efficiency or equity Demand can also = supply without an equilibrium At any point in time what is actually bought must equal what is actually sold
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Actual demand must always equal...
actual supplu Equilibrium occurs at a price = no tendency to change Price will not change if at the current price = quantity that consumers wish to buy is equal to the quantity that supplies wish to sell
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Prices rations - allocation of resources
people who need/ want it more will pay a higher price Supply high + demand low = low prices – reflect lack of scarcity of the good The graph shows the movement up the demand curve shows the effect of the rationing function - look at fiagram
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signalling funtion
The price of a good = key piece of info to both buyers and sellers in the market Prices come about = transaction of buyer and sellers Reflect market conditions and therefore act as a signal to those in markets. - add diagram
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Incentive function
Incentive function Price = acts as an incentive Low prices encourage buyers to purchase more goods = utility gained per pound increase relative to goods Higher prices discourage consumers so they purchase fewer goods
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Supply side of things...
= higher prices encourage supplier to sell more to market Firms may have to take on more workers and invest in new capital equipment Low prices discourage production Prolonged fall = may put firms out of business = no profit in supply
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E.g. 1
Assume demand for fur coats falls because of welfare groups. Demand curve for fur coats shift left = more is supplied then demand at the old price Equilibrium price will fall= lower price reduces incentives for fur coat manufactures
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Continued
Lower price = indicate that profits will fall = less will be supplied =movement down supply curve
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E.g. 2
: Supply of oil falls = supply curve shifts left Old equilibrium price = excess demand Equilibrium price will rise = less oil being supplied and demanded Higher prices = rations oil amongst buyers shown by movement up demand curve for oil
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Continued
Some consumer of oil will be priced out of market altogether Others will cut back on their purchases
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Other cards in this set

Card 2

Front

Supply increase

Back

demand = higher equilibrium output -= higer pricees

Card 3

Front

Consumer

Back

Preview of the front of card 3

Card 4

Front

Amount of consumer and producer surplus

Back

Preview of the front of card 4

Card 5

Front

If supply increases

Back

Preview of the front of card 5
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