Suppose that a frost in Florida reduces the size of the...

Name: Problem 8, Chapter 4: Macroeconomics
Uploaded: 2019-08-14T15:48:16-08:00
Duration: 4 min 3 s
Channel: Xiaomin Bian
Description: Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve for oranges to shift to the left. Briefly explain whether consumer surplus will increase or decrease and whether producer surplus will increase or decrease. Use a demand and supply graph to illustrate your answers.

Suppose that a frost in Florida reduces the size of the orange crop, which causes the supply curve for oranges to shift to the left. Briefly explain whether consumer surplus will increase or decrease and whether producer surplus will increase or decrease. Use a demand and supply graph to illustrate your answers.

Key Concepts

Consumer Surplus

Consumer surplus is the difference between what consumers are willing to pay for a good and what they actually pay. A decrease in supply, which typically raises the market price and reduces the quantity available, tends to lower consumer surplus because consumers pay more for a smaller quantity, reducing the net benefit they gain from the market transaction.

Producer Surplus

Producer surplus is the difference between the price at which producers are willing to sell a good and the price they actually receive. When supply shifts left, even though the price might increase, the decrease in quantity sold generally leads to a reduction in total surplus for producers, as they are producing and selling fewer units overall.

Supply Shift

A supply shift refers to a change in the quantity supplied at every price level, typically due to external factors affecting production conditions. A leftward shift in the supply curve indicates a reduction in supply, often resulting from adverse events, higher production costs, or other disruptions that decrease the available quantity of the good in the market.

Demand and Supply Graph

The demand and supply graph is a fundamental tool in microeconomics used to illustrate the relationship between the price of a good and the quantity demanded or supplied. Shifts in the supply curve, as depicted in the graph, illustrate how changes in external conditions affect market equilibrium, which in turn influences consumer and producer surpluses.

Transcript

00:01 Okay, so for this question, the question basically asked about how will be the consumer support and producer supports changed based on the different change of supply and demand.

00:13 So firstly, let's draw a graph.

00:17 Original graph, we have quantity and price, and we have the demand curve to be downward sloping and supply curve upward sloping.

00:28 And based on demand curve and supply curve, we have the equivalent.

00:31 Equivalent price, let's say p star here and equivalent quantity, q star here.

00:40 Okay, so that's originally equivalent price and equivalent quantity, and based on the equivalent price and equivalent quantity, from the definition of consumer surplus and producer surplus, we know this large triangle here is consumer surplus, and this triangle here will be producer surplus.

01:00 This is the original case.

01:03 And think about there is a frost in florida.

01:07 So if that's the case, a frost basically means that there will be some decrease in supply.

01:13 And the decrease in supply, if you draw a new supply curve.

01:17 So the new supply curve should be a left shift of the original supply curve, because there will be some supply decrease and should be a parallel shift.

01:28 And the frost basically has no influence on the demand curve.

01:34 So because of this left shift of supply curve, we have a new equivalent market price, let's say p prime, and a new equivalent market quantity, that is q prime.

01:51 Okay, so based on this new equivalent price and new equivalent quantity, we know that this triangle here will be the consumer surplus, right? and this triangle here will be the producer surplus.

02:11 It's a prime to distinguish...

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