ECON101: Principles of Microeconomics

To use this simulation, you must download and install the Mathematica Viewer. Although this software is free, it is a sizable download. This activity is therefore optional.

Surplus is a measure of the willingness of a producer or a consumer to participate in the marketplace. Total surplus is the sum of producer surplus and consumer surplus. The relative amounts of total surplus claimed by the consumer or the producer is determined by their respective elasticities of demand and supply. The following simulation shows how elasticities determine the sharing and magnitude of total surplus, consumer surplus, and producer surplus

Once you have downloaded the software to your desktop, open the simulation and read the instructions.

Change the respective elasticities by moving each slider. Note how the area of the blue triangle (consumer surplus) and the pink triangle (producer surplus) change proportionally to changes in the respective elasticities. Three positions for the sliders are of particular interest.

1. Move the sliders until the blue and pink areas of surplus are approximately equal. Look at the sliders, what can you conclude about the elasticities of demand and supply and how total surplus is shared?
2. Move the sliders to opposite ends of the slider bars. What conclusions can you draw about the relative differences in elasticity and the allocation of total surplus?
3. Move both sliders as far as possible to one side and then move them both to the other side. What can you conclude about products where both consumer and producer/seller have very inelastic or on the other hand where both have very elastic?

Record your observations in your notes and discuss your conclusions with your peers in the discussion forum.