Summary
Highlights
The video starts by reviewing previous calculations of producer and consumer surplus with given supply and demand equations. It then introduces the concept of calculating these surpluses when there's a shift in either the supply or demand curve. The specific example focuses on a new supply equation: P = 2/10 Q.
To find the new equilibrium, the new supply equation (P = 2/10 Q) is set equal to the original demand equation (40 - 1/10 Q). Solving for Q, the new equilibrium quantity (Q*) is found to be approximately 133.33. This Q* is then plugged into either the supply or demand equation to find the new equilibrium price (P*), which is calculated as 26.67. This demonstrates that the price decreased and quantity increased with the shift in supply.
The consumer surplus is calculated as the area of a triangle: 1/2 of the base (new Q* = 133.33) multiplied by the height (difference between the original demand intercept and new P* = 40 - 26.67). This results in a consumer surplus of 888.64. The producer surplus is calculated as 1/2 of the base (new Q* = 133.33) multiplied by the height (new P* = 26.67), resulting in a producer surplus of 1777.96.
The video highlights that both consumer and producer surplus increased compared to the previous example. It explains that the increase in consumer surplus comes from two areas: additional surplus for existing consumers who now pay a lower price, and new surplus for new customers who are willing to consume at the lower price. Similarly, for producers, there's increased surplus for existing producers and new surplus for new producers entering the market at the new conditions.