Economics explainer
Where Buyers Meet Sellers
At a farmers’ market, buyers want more apples when the price is low and growers bring more when it is high. Where the two schedules cross, the amount buyers want equals the amount sellers offer: the equilibrium price and quantity. Shift either curve and see where they meet next.
- demand D
- supply S
- before the shift
- consumer surplus
- producer surplus
- lost trades
Shift the curves
Pick a cause, or drag a slider. A shift moves the whole curve sideways: a different amount wanted or offered at every price.
Price control
A ceiling is a legal maximum price; a floor is a legal minimum.
The numbers
- Equilibrium price
- Equilibrium quantity
- Consumer surplus
- Producer surplus
- Total gains from trade
- Elasticity of demand
- Elasticity of supply
Under the ceiling
- Buyers want
- Sellers offer
- Shortage
- Bushels traded
- Consumer surplus
- Producer surplus
- Lost gains (deadweight loss)
Before and after
| Price | Quantity | Consumer surplus | Producer surplus |
|---|
What to notice
A change in price moves along a curve. A change in anything else (tastes, the number of buyers, the price of pears, the harvest, the cost of diesel) shifts the whole curve.
More demand raises both price and quantity. More supply lowers the price but raises the quantity. When only one curve shifts, you can predict both directions; when both shift, one of the two is uncertain.
Below equilibrium, a ceiling leaves more buyers than bushels: a shortage. Above equilibrium, a floor leaves bushels unsold: a surplus. A ceiling above the market price, or a floor below it, changes nothing.
Why it works
Equilibrium is where Qd = Qs. For straight lines Qd = A − BP and Qs = C + DP, that gives P* = (A − C) ÷ (B + D).
Consumer surplus is what buyers would have paid above what they did pay: the triangle under demand and above the price. Producer surplus is what sellers received above their cost of bringing each bushel: the triangle above supply and below the price.
Elasticity measures how strongly quantity responds to price: the percent change in quantity for a 1% change in price. At a point on a line it is the slope times P ÷ Q.
Alfred Marshall compared supply and demand to the two blades of a pair of scissors: neither one alone does the cutting.
Try it
- Solve 240 − 8P = −40 + 6P by hand. Do you get the page’s price and quantity?
- A spring frost hits. Which way do price and quantity move? Which surplus grows, if either?
- Add an apple pie craze on top of a bumper harvest. Which moved for sure, price or quantity?
- Set a ceiling of $16. How big is the shortage? Now try a ceiling of $24. Why does nothing happen?
- Set a floor of $25. How many bushels go unsold? Who gains surplus and who loses it?
A teaching model: straight-line curves for one market, apples by the bushel. Under a price control, the bushels sold are assumed to go to the buyers who value them most and to come from the growers whose costs are lowest, as in most textbooks; real rationing by lines or lottery can lose more. No outside code, images or trackers.