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Figure 1 Graph Before the Price Ceiling A supply and demand curve graph represents the special relationship between the amount of product available to the market and the correlation between how much the consumers within the market demand the product Equilibrium occurs when the demand and supply curves intersect which is called the equilibrium point The equilibrium price is the only price where the desires of consumers and producers agree and produces an efficient result In Figure 1 the equilibrium price is 250 and the equilibrium quantity is 150 units as shown in Figure 1 A competitive market operating at equilibrium is typically an efficient market Now the government has imposed a price ceiling of 200 per smartphone A price ceiling keeps the price from rising above a specific level The price ceiling can be seen clearly in Figure 2 Figure 2 Graph After the Price Ceiling demanded is 175 units The quantity supplied can be found when the price ceiling intersects The quantity demanded and supplied must be calculated to identify the new abundance of smartphones bought and sold in this market The quantity demanded can be found when the price ceiling intersects with the demand curve shown on the graph as The quantity with the supply curve shown on the graph as The quantity supplied is 100 units The total benefit in equilibrium was 33 750 units and the total benefit with the price ceiling was 30 000 units When the two are subtracted it will equal the deadweight loss A deadweight loss is a cost to society that is enabled by the inefficiencies of markets and typically occurs whenever the supply and demand are out of equilibrium Therefore the deadweight loss would be 3 750 units The producer surplus in equilibrium was 11 250 units with the price ceiling the producer surplus was 5 000 units That is a decrease of 6 250 units in the area of the producer surplus

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UF ECO 2023 - Supply and Demand

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