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AP Microeconomics AMSCO Guided Notes

2.6: Market Equilibrium and Consumer and Producer Surplus

AP Microeconomics
AMSCO Guided Notes
2.1 Demand
2.2 Supply
2.3 Price Elasticity of Demand
2.4 Price Elasticity of Supply
2.5 Other Elasticities
2.6 Market Equilibrium and Consumer and Producer Surplus
2.7 Market Disequilibrium and Changes in Equilibrium
2.8 The Effects of Government Intervention in Markets
2.9 International Trade and Public Policy

AP Microeconomics Guided Notes

AMSCO 2.6 - Market Equilibrium and Consumer and Producer Surplus

Essential Questions

  1. How does the market for a product or service reach equilibrium between supply and demand?
I. Market Equilibrium

1. What is market equilibrium and what conditions must exist for it to occur?

2. How do shortages and surpluses signal that a market is not in equilibrium?

A. Shortages

1. What is a shortage and how does it occur in a market?

2. How do producers typically respond to a shortage to restore market equilibrium?

B. Surpluses

1. What is a market surplus and what causes it to occur?

2. How do price changes help reduce a surplus and restore equilibrium?

3. What are examples of products that experience seasonal surpluses and how do businesses respond?

C. Graphing Market Equilibrium

1. How do you determine the equilibrium price and equilibrium quantity on a supply and demand graph?

II. Efficient and Inefficient Markets

1. What is allocative efficiency and how does the equilibrium price help achieve it?

2. How do efficient and inefficient markets differ in terms of resource allocation?

III. Consumer Surplus, Producer Surplus, and Market Efficiency

A. Consumer Surplus

1. What is consumer surplus and how is it calculated?

2. How is consumer surplus represented graphically on a demand curve?

B. Producer Surplus

1. What is producer surplus and how does it differ from consumer surplus?

2. How does producer surplus change when market price and quantity supplied increase or decrease?

C. Total Economic Surplus

1. What is total economic surplus and how is it calculated?

2. Why is total surplus maximized when a market is at equilibrium price and quantity?

3. How does perfect competition ensure that consumer surplus and producer surplus are both maximized?

Key Terms

market supply

market equilibrium

equilibrium price

equilibrium quantity

perfect competition

inventory

shortage

surplus

market surplus

efficient market

inefficient market

consumer surplus

producer surplus

total economic surplus