Macroeconomic Fundamentals: Growth and Equilibrium

Supply and Demand Shifts and Economic Surplus

• Leftward Shift in Supply ($S$)

  • Results in a decrease in Consumer Surplus ($CS$).

  • The $\Delta CS$ is negative (< 0) because a portion of the original consumer surplus area is no longer included.

• Rightward Shift in Demand ($D$)

  • Results in an increase in Producer Surplus ($PS$).

  • The new $PS$ encompasses the old $PS$ plus an additional area, making the $\Delta PS$ positive (> 0).

  • The change in Consumer Surplus ($CS$) is ambiguous without specific demand and supply equations, as its shape changes.

• Leftward Shift in Demand ($D$)

  • Results in a decrease in Producer Surplus ($PS$).

  • The change in Consumer Surplus ($CS$) is ambiguous as its shape changes.

  • It's crucial to be able to replicate these graphical shifts and their effects on surplus.

Marginal Analysis and National Income

• Marginal Product (or Marginal Change)

  • Defined as the additional product (or change) when one unit of an input is added.

  • In economics,