DD & SS APPLICATION

[CONSUMER & PRODUCER SURPLUS]

 DD & SS APPLICATION-I [DUR]
• The point of intersection (qe, pe) of the supply and demand curves
is called the market equilibrium point.
• The numbers qe and pe are termed equilibrium quantity and equilibrium
price respectively.
• This is called the consumer surplus for this product (See picture above). To summarize

• Their gain called producer surplus is given by the following quantity

•
EXAMPLE
 DD & SS APPLICATION-I [SUD]
• The demand & supply functions are:
D(q) = –0.4q+ 23; S(q) = 0.03 q2 + 3
• a. Find the equilibrium price and equilibrium quantity?
• b. Then compute the consumer and producer surplus?
 DD & SS APPLICATION-II [SUD]
• Show diagrammatically the effect on the demand curve, the supply curve,
the equilibrium price and the equilibrium quantity of each of the following
events:
• i) The market for Case and Fair economics textbook
• a) When your professor makes it required reading for all of his/her students.
• b) When printing costs for the textbook is lowered by the use of synthetic
paper.
• ii) The market for newspapers in your town
• a) When the salaries of the journalists go up.
• b) When a big event happened in your town which is reported in the
newspapers.
 DD & SS APPLICATION-I [DUS]
• Given, Qd = 300-20P & Qs = 20P – 100

• A. Draw DD & SS curve

• B. Equilibrium Price & Quantity
• C. What if suppliers set a price of $15 instead of $10
• D. Suppose demand doubles at every price, people are demanding
twice as much pizza as before
• i. What is the new demand curve
• Ii. New Equilibrium Price & Quantity
• III. Calculate CS & PS for the new equilibrium & Compare with the
initial equilibrium