Figure 17.10: When do we reach market equilibrium?
17.5. At last year’s annual association fair of suppliers of Digiview camcorders, surveys were taken of how many of a new digital model the association members would be willing to supply at various prices. A supply function S(x) was generated by regressing on this data. In a similar fashion, a demand function D(x) was generated from surveys taken in malls across the country as to the price consumers would be willing to pay for this new model. After determining the consumers’ surplus and the producers’ surplus, the association recommended at that time that the digital model’s market price be set at the equilibrium price. Recently, however, the association journal ran an article expressing alarm over the relatively large producers’ surplus compared to the consumers’ surplus. Without modifying the demand function, the article recommended that suppliers need to rethink how much they would be willing to supply of the model at various prices and that new surveys need to be taken at this year’s fair in order to establish a new market price.
17.6. Suppose the demand and supply curves for a commodity are known. Discuss the state of the market for this commodity from both the consumers and producers points of view when
17.7. Discuss how we can determine when market equilibrium has been reached by adding together the areas for the consumers’ surplus and the producers’ surplus for increasing values of x (i.e. the area between the supply and demand curves)? Hint: see figure 17.10.