How EXcess Demand creates an Opportunity for a Surplus-Enhancing Transaction 2.50 If P= $l then Qs = 2,000 2.00 gallons/day At 2,000 gallons the consumer is willing to pay $2 and the MC=$1 61.50 If the buyer pays $1. 25for an extra gallon, producer is $ 25 1.25 better off. and the consumer is 1.00 $.75 better off, or economic surplus increases by $1.00 At $1, the market is not efficient 3 4 Quantity(1,000s of gallons/day) Chapter 7: Efficiency and Exchange Slide 9MB MC Chapter 7: Efficiency and Exchange Slide 9 How Excess Demand Creates an Opportunity for a Surplus-Enhancing Transaction 2.50 Quantity (1,000s of gallons/day) Price ($/gallon) D S 1 2 3 4 5 2.00 1.50 1.00 .50 1.25 • If P = $1 then QS = 2,000 gallons/day • At 2,000 gallons the consumer is willing to pay $2 and the MC = $1 • If the buyer pays $1.25 for an extra gallon, producer is $.25 better off, and the consumer is $.75 better off, or economic surplus increases by $1.00 • At $1, the market is not efficient