Theory of Supply and Demand


The Demand curve, D(q), is the blue curve.
The Supply curve, S(q), is the red curve.



Consumer's Surplus -- Total savings to consumers who are willing to pay a higer price than the equilibrium price p'.

Producer's Surplus -- Total savings to the producer who is willing to supply the product at a price lower than the equilibrium price p'

(q', p') -- The equilibrium point.
q' -- The equilibrium quantity.
p' -- The equilibrium price.

Note: At the equilibrium point, (q', p'), the supply equals the demand.



Next: See how to turn Oinkle Sam's problem into a system of equations in the "Solution Set Up."