Supply and demand, hands on
Every market price — coffee, gas, rent, wages — comes from the tug-of-war between buyers and sellers. Shift the curves and try government policies.
■ consumer surplus · ■ producer surplus · ■ tax revenue · ■ deadweight loss
What’s happening
Key ideas
Law of demand: as price rises, buyers want less. Law of supply: as price rises, sellers offer more. The equilibrium is where they meet.
Shifts vs. movements: a change in price moves you along a curve. A change in anything else (income, tastes, costs, technology) shifts the whole curve.
Consumer surplus is the gap between what buyers would pay and what they do pay. Producer surplus is the gap between the price sellers get and their cost. Deadweight loss is value lost when trades that would benefit both sides don’t happen.
How does one market connect to the whole economy? Open the macro simulator — aggregate demand and aggregate supply work the same way, but for all goods at once.