Consumer + Producer Surplus

• The functions of the price mechanism include signaling excess demand and incentivizing firms to increase output to make more profit.
• When the demand curve shifts to the right, it shifts at the initial price in the market, which is P1.
• The disequilibrium that exists when a curve is shifted can be found by extending P1 across to find the new demand, which is all the way over here, where supply has remained at q1.
• An excess demand or shortage is when demand is greater than supply.
• Firms are incentivized to increase their output to make more profit at higher prices.
• Higher prices signal the need for more resources for both consumers and producers.
• Higher prices incentivize firms to increase their output to make more profit.
• Higher prices ration scarce resources by discouraging consumption.
• The reallocation of resources is achieved with a higher quantity at higher prices.
• The functions of the price mechanism work in getting from one equilibrium to a new equilibrium.
• The functions of the price mechanism include the incentive function to reduce output in response to lower prices, the rationing function to encourage more demand, and the allocation function to allocate scarce resources efficiently.
• Lower prices ration scarce resources by encouraging more demand.
• Excess supply completely takes away at equilibrium.
• A supply shift to the right will cause the supply curve to shift at the initial price in the market, P1.
• Lower prices incentivize producers to reduce output instead of liquidating stocks.
• An excess supply or surplus occurs when supply is greater than demand.
• Lower prices first signal that there has been an excess supply to both consumers and producers, and they also signal the need for fewer resources.
• The functions of the price mechanism are to get from one equilibrium to a new equilibrium.
• The expansion or the extension along the demand curve shows the effect of lower prices on quantity.
• The contraction along the supply curve shows the effect of lower prices on output.
• Excess supply or surplus puts downward pressure on prices.
• The incentive function of the price mechanism is to reduce output in response to lower prices.