Quiz 2: The Basic Theory Using Demand and Supply


Producer surplus is the net gain to producers from being able to sell a product through a market. It is the difference between the lowest price at which some producer is willing to supply each unit of the product and the actual market price that is paid, summed over all units that are produced and sold. The lowest price at which someone is willing to supply the unit just covers the extra (marginal) cost of producing that unit. To measure producer surplus for a product using real world data, three major pieces of information are needed. First, the market price. Second, the quantity supplied. Third, some information about the slope (or shape) of the supply curve. How would quantity supplied change if the market price decreased Or, what are the extra costs of producing each unit up to the actual quantity supplied Producer surplus could then be measured as the area below the market price line and above the supply curve.

The country's demand for imports is the amount by which the country's domestic quantity demanded exceeds the country's domestic quantity supplied. The demand-for-imports curve is derived by finding the difference between domestic quantity demanded and domestic quantity supplied, for each possible market price for which quantity demanded exceeds quantity supplied. The demand-for-imports curve shows the quantity that the country would want to import for each possible international market price.

The scrap iron and steel are exported by U.S. to japan and other countries. Some U.S users support a ban on the export of steel and iron. The reasons for the same are given below: 1. The demand for steel and iron from other countries buyers will lead to increase in total demand for iron and steel. The higher demand of iron and steel from other countries lead to rise in the price of scrap iron and steel which will negatively affect the U.S consumers as they need to pay higher prices for iron and steel. 2. Firm using iron and steel as raw material in U.S economy will have to face higher raw material cost. The higher cost of raw material will lead to increase in the price of the end product and consumer of end product need to pay higher prices.