1. Double Shifts and Consumer Surplus

2. Double Shifts
Suppose the demand for sports cars fell at the same time as production technology improved.
Use S&D Analysis to show what will happen to PRICE and QUANTITY.
If TWO curves shift at the same time, EITHER price or quantity will be indeterminate.

3. Shifting both Supply and Demand
Suppose the demand for sports cars fell at the same time as production technology improved.
Demand Falls
Tech. Improves
Final Result
Price
Quantity
Price
Price S S S1 P1 ? P1 P2 P2 D D D1
Qty.
Qty. Q2 Q1 Q1 Q2
Result: Price
Quantity
Result: Price
Quantity X X

4. Shifting both Supply and Demand #2
Suppose the demand for the Nintendo Wii U increased at the same time as a nuclear meltdown happened in Japan.
Demand Increases
Nuclear Meltdown
Final Result
Price
Quantity
Price
Price S S1 S P2 P2 P1 ? P1 D1 D D
Qty.
Qty. Q1 Q2 Q2 Q1
Result: Price
Quantity
Result: Price
Quantity X X

5. Practice

6. Double Shift Supply and Demand Factors Practice6

7. Discussion Question
Think of at least 3 items you got a great deal on (you would have paid more $ for these items than you had to).

8. Voluntary Exchange
In the free-market, buyers and sellers voluntarily come together to seek mutual benefits.

9. 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

10. Example of Consumer & Producer Surplus
Ex: You want to buy a truck so you go to the local dealership. You are willing to spend up to $20,000 for a new 4x4. The seller is willing to sell this truck for no less than $15,000. After some negotiation you buy the truck for $18,000.
Analysis:
Buyer’ Maximum-
Sellers Minimum-
Price-
Consumer’s Surplus-
Producer’s Surplus-
$20,000
$15,000
$18,000
$2,000
$3,000

11. Consumer and Producer’s Surplus
Calculate the area of:
Consumer Surplus
Producer Surplus
Total Surplus P
$10 8 6 $5 4 2 1 S CS
CS= $25
PS= $20
Total= $45 PS D 10 Q

12. Practice