Chapter 4-Demand Supply Applications
Chapter 4-Demand Supply Applications
Chapter 4-Demand Supply Applications
Twelfth Edition
Chapter 4
Demand and Supply
Applications
4-1
1-1
4-2
1-2
4-3
1-3
4-4
1-4
4-5
1-5
4-6
1-6
4-7
1-7
4-8
1-8
4-9
1-9
4-10
1-10
4-11
1-11
4-12
1-12
4-13
1-13
4-14
1-14
Price Floor
price floor A minimum price below which exchange is not
permitted.
minimum wage A price floor set for the price of labor.
4-15
1-15
4-16
1-16
4-17
1-17
As illustrated in panel (a), some consumers (see point A) are willing to pay as much as $5.00 each for
hamburgers. Since the market price is just $2.50, they receive a consumer surplus of $2.50 for each
hamburger that they consume.
Others (see point B) are willing to pay something less than $5.00 and receive a slightly smaller surplus.
Because the market price of hamburgers is just $2.50, the area of the shaded triangle in panel (b) is
equal to total consumer surplus.
Copyright 2017 Pearson Education, Inc.
4-18
1-18
Producer Surplus
4-19
1-19
As illustrated in panel (a), some producers are willing to produce hamburgers for a price of $0.75 each.
Since they are paid $2.50, they earn a producer surplus equal to $1.75.
Other producers are willing to supply hamburgers at prices less than $2.50, and they also earn producer
surplus. Because the market price of hamburgers is $2.50, the area of the shaded triangle in panel (b) is
equal to total producer surplus.
Copyright 2017 Pearson Education, Inc.
4-20
1-20
4-21
1-21
Total producer and consumer surplus is greatest where supply and demand curves
intersect at equilibrium.
Copyright 2017 Pearson Education, Inc.
4-22
1-22
Panel (a) shows the consequences of producing 4 million hamburgers per month instead of 7 million
hamburgers per month. Total producer and consumer surplus is reduced by the area of triangle ABC
shaded in yellow. This is called the deadweight loss from underproduction.
Panel (b) shows the consequences of producing 10 million hamburgers per month instead of 7 million
hamburgers per month. As production increases from 7 million to 10 million hamburgers, the full cost of
production rises above consumers willingness to pay, resulting in a deadweight loss equal to the area of
triangle ABC.
Copyright 2017 Pearson Education, Inc.
4-23
1-23
4-24
1-24