Macro Economics

The graph depicting the supply and demand for ice cream cones will usually depend on the supply schedule and demand schedule for the ice cream cones. It is with the demand and supply schedules that the equilibrium price and quantity of the ice cream cones will become established (Henderson, 2004). The demand schedule for ice cream cones indicates a table showing the quantity of ice cream cones demanded at a given price. Therefore, this helps to determine what charge an individual is likely to pay for demanding a given quantity of ice cream cones. The illustration that follows shows a table depicting the demand schedule for ice cream cones. The price for ice cream cones is in dollars. This will be associated with buyers of ice cream cones.

Demand schedule for ice cream cones

Price of Ice cream cones (p) Quantity of ice cream cones demanded (Qd)

0.5 45

1.0 40

1.5 35

2.0 30

2.5 25

3.0 20

3.5 15

4.0 10

On the other hand, a supply schedule for ice cream cones indicates the price charge for every quantity of ice cream cone supplied. It is with the supply schedule for the ice cream cones that an individual is capable of determining the price he will earn by supplying a certain quantity of ice cream cones. This will usually become associated with sellers or suppliers of ice cream cones. The following table shows the supply schedule for ice cream cones.

Supply schedule for ice cream cones

Price of ice cream cones (p) Quantity of ice cream cones supplied (Qs)

0.5 4

1.0 8

1.5 12

2.0 16

2.5 18

3.0 20

3.5 22

4.0 24

From the supply and demand schedules, it is possible to come up with the supply and demand curves for ice cream cones. The intersection of the two curves will indicate the equilibrium price and quantity (Mankiw, 1998). At equilibrium, the quantity of ice creams supplied will be equal to the quantity of ice cream cones demanded. The following graph indicates the demand and supply of ice cream cones and the subsequent equilibrium price and quantity standing at $ 3 and 20 units respectively.

PriceSupply curve

4.0

A

3.0E

B

2.0

1.0

Demand curve

5 10 15 20 25 30 35 40 45 Quantity

Point E indicates the equilibrium. At this point, quantity supplied equals quantity demanded, and the price of ice cream cones at this point is $3.

Consumer surplus depicts the difference between the entire amount, which consumers are willing and have the ability to pay for a commodity and the actual amount, which they pay for the commodity (Mankiw & Taylor, 2006). In the case above, the market price indicates what consumers actually pay for ice cream cones while the demand curve indicates the total amount, which consumers are willing and capable of paying. Therefore, area A represents the consumer surplus since it falls above the prevailing market charge for ice cream cones. On the other hand, producer surplus depicts the difference between the total amount that producers are willing and capable of charging in order to supply a commodity, and the actual amount that they receive for the commodity (Mankiw & Taylor, 2006). In the case above, producers can only charge a maximum of $ 3 as provided by the prevailing market. Therefore, area B represents the producer surplus since it falls under the charge of $ 3.

References

Henderson, D.H. (2004). Supply and Demand. New York: Prentice Hall.

Mankiw, N. G. (1998). Principles of microeconomics. Fort Worth: The Dryden Press.

Mankiw, N. G., & Taylor, M. P. (2006). Economics. London: Thomson.