Embedded Files
--2.5.1 CONSUMER SURPLUS--
--2.5.1 CONSUMER SURPLUS--
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--TASK--
"At a 'market price' of $5, work out the quantity consumed, the total benefit, the total expenditure, and the consumer surplus."
--2.5.2 PRODUCER SURPLUS--
--2.5.2 PRODUCER SURPLUS--
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--TASK--
"At a 'market price' of $5, work out the quantity produced, the total cost, the total revenue, and the producer surplus."
--2.5.3 CAUSES OF CHANGES--
--2.5.3 CAUSES OF CHANGES--
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"From the diagrams above we can see that changes in the price paid by consumers and the price received by producers determine the sizes of CS and PS. So what cases a change in price?"
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--TASK--
"Sketch diagrams to show how each of the following 'causes' impacts PS and CS."
>>>>Causes of a rise in price<<<<
1) Government effective minimum pricing
2) Leftward shift in the supply curve
3) Rightward shift in the demand curve
>>>>Causes of a fall in price<<<<
1) Government effective maximum pricing
2) Rightward shift in the supply curve
3) Leftward shift in the demand curve
--2.5.4 LINK TO PED & PES--
--2.5.4 LINK TO PED & PES--
"Look at your diagrams for a min & max price, and ask yourself, do you agree with the following statements?"
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"A min price will always result in a fall in CS & a rise in PS."
"A max price will always result in a fall in PS & a rise in CS."
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--TASK--
"Check using the interactive diagram below, whether this is always the case, what do you notice?"
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"You should have noticed that if you adjust the PED, a minimum price will certainly result in a fall in CS, but the change in PS is ambiguous and depends on the size of the change in price and the PED. Similarly, a maximum price will certainly result in a fall in PS, but the change in CS is ambiguous and depends on the size of the change in price and the PED."
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--TASK--
Sketch diagrams showing a min. price resulting in higher PS and a diagram showing it resulting in lower PS, and diagrams showing a man. price resulting in higher CS and a diagram showing it resulting in lower CS."
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"A min price will always result in a fall in CS & a rise in PS."
"A max price will always result in a fall in PS & a rise in CS."
"A fall in supply will always result in a fall in PS and CS."
"A rise in supply will always result in a rise in PS and CS."
"A fall in demand will always result in a fall in PS and CS."
"A rise in demand will always result in a rise in PS and CS."
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"But if we think aboyt
If we refer back to the first statement:
"When price rises, CS falls; and PS rises!"
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"Look at these diagrams. Is this always the case
[Diagram of a min. price and changing d-curve showing how the PS goes from loss and gain depending on the PED]
[Diagram of a leftward shift in the supply curve and changing d-curve showing how the PS goes from loss and gain depending on the PED]
[Diagram of a rightward shift in the demand curve and changing s-curve showing how the PS goes from loss and gain depending on the PES]
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"Following a leftward shift in supply of an effective minimum price, CS will always decrease. However, the impact on PS is ambiguous: it will rise if demand is price inelastic, fall if demand is price elastic, and remain unchanged if demand is unit elastic."
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[Diagram of rise in price
"It is possible for an effective minimum price to result in a fall in both CS and PS as well as a fall in CS and a rise in PS?" "But what does it depend on?"
"Following a leftward shift in supply, CS will always decrease. However, the impact on PS is ambiguous: it will rise if demand is price inelastic, fall if demand is price elastic, and remain unchanged if demand is unit elastic."
"In the above example a rise in price always resulted in a rise in PS, and vice versa. Is it possible that a rise in price could lower PS? If so, what condition must be met? Sketch it!"
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"A rise in price does not automatically guarantee an increase in PS. If demand is price elastic (PED > 1), the resulting fall in quantity sold will be proportionally larger than the rise in price, leading to a net decrease in PS."
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[Sketch of moving demand curve from inelastic to elastic to show how PS rises and falls given a rise in price.]
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