A. If the price of a pizza is 12, is there a shortage or a...

a. If the price of a pizza is $$\$ 12$$, is there a shortage or a surplus and does the price rise or fall?
b. Buyers want to pay the lowest possible price, so why would they be willing to pay more than $$\$ 12$$ for a pizza?

Key Concepts

Supply and Demand Equilibrium

This concept explains how prices in a market are determined by the interaction of supply and demand. When supply equals demand, the market is at equilibrium, meaning there is neither a shortage nor a surplus. Any deviation from this equilibrium results in disequilibrium, prompting adjustments in the price to restore balance.

Surplus and Shortage

A surplus occurs when the quantity supplied exceeds the quantity demanded at a given price, causing downward pressure on prices. Conversely, a shortage happens when the quantity demanded exceeds the quantity supplied, leading to upward pressure on prices. These concepts are fundamental in understanding market dynamics and price adjustments.

Price Mechanism

The price mechanism refers to the way prices adjust in response to changes in supply and demand. It is a self-correcting system where excess supply pushes prices down, and excess demand pushes prices up. This mechanism ensures that resources are allocated efficiently in the market.

Willingness to Pay

Willingness to pay is the maximum amount a consumer is prepared to sacrifice to acquire a good or service. Even though buyers generally desire lower prices, variation in individual valuation means some buyers may be willing to pay more due to factors like urgency, perceived quality, or lack of substitutes.

Consumer Surplus

Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay. It captures the extra benefit consumers receive when they pay a price lower than their maximum willingness to pay. This concept helps explain why buyers might appear willing to pay more than the market price under certain conditions.

Transcript

00:01 Here, let's take a look at a demand and supply schedule for pizza.

00:05 We're given a variety of prices and a variety of quantities that coordinate with one another.

00:09 And what we'd like to do is first graph it and find its equilibrium, and then we'll go on to discuss shortages and surpluses and how those are impacted and how those impact the equilibrium and how the price varies there.

00:23 So let's go ahead and start by graphing this.

00:25 Let's start with our demand curve.

00:26 I'm going to do this in red.

00:27 We're given all of these coordinate points, so all we need to do is plot these.

00:31 We've got 4 -135 -104, 681, 768, 853, and 939.

00:49 So that gives us our demand curve looking something like that.

00:54 Let's go ahead now and we can do our supply.

00:56 I'll do it in blue.

00:57 We're at a price of four.

00:58 We have 26 pizzas demanded.

01:01 Five, we have 53.

01:04 6, we have 81, 7 we have 98.

01:09 At $8, we have 110 pizzas demanded, and at $9 we have 121 pizzas demanded.

01:16 So that gives us, i'm gonna actually redo this just for the purpose of it, looking a little bit more linear, because my lines were not the greatest.

01:26 So there is our supply curve...

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