Managerial Economics - Analyzing Market Prices | Robert Reed | Skillshare

Managerial Economics - Analyzing Market Prices

Robert Reed

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8 Lessons (40m)
    • 1. Introduction To Supply and Demand

      0:50
    • 2. Law of Demand

      12:05
    • 3. Consumer Surplus

      4:21
    • 4. Law of Supply

      3:24
    • 5. Market Equilibrium

      4:50
    • 6. Equilibrium Analysis Continued

      4:03
    • 7. Price Ceiling

      5:42
    • 8. Price Floor

      4:26

About This Class

In this class, we will continue our study of Managerial Economics and conduct analysis related to supply and demand. You will learn the basics of how businesses decide how much to produce and what price to charge. We will also study the impact that various government policies, such as price floors and price ceilings have on the market. The goal of this course is to help you understand what factors influence the quantity that a business produces as well as the price that it charges for its products. 

Transcripts

1. Introduction To Supply and Demand: Hello. Welcome back to the course and managerial economics in this section we're going to be talking about the basics of the market will learn about supply and demand. We will learn that market equilibrium is a situation in which supply and demand are perfectly balanced in harmony. We'll learn about an equilibrium, price, equilibrium, quantity, but will also learn about things that shift this equilibrium, quantity or price. We'll talk about intrusions in the markets, such as a price floor or a price ceiling that can disrupt a market. That's an equilibrium. We'll talk about consumer and producer surplus, and we will learn about the losses that are imposed by excessive government regulation in the market. This is going to be a very interesting section, and I hope you learn a lot, so let's start learning. 2. Law of Demand: Hello. Welcome back to the course. Managerial economics. Today we're going to be talking about supply and demand. Now, supply and demand is the most fundamental concept in all of economics. So it's critically important that we understand this concept before we move forward with our studies. Now we're going to start by talking about demand and beloved Demand says that as the price of a good increases, the quantity demanded decreases. And as the price decreases, the quantity demanded increases. Now let's just think about this intuitively, because it makes sense, right. If you go to the store and you want to buy a Coca Cola or a Pepsi or something and you see the price on the shelf, you buy, let's say just one can of coke. But if they give you a buy one get one or a 50% off. If you buy three or more than you're more likely to buy more, perhaps you say, you know what? I'm gonna buy one now and save it for later, or you see the lower price and you say, You know what? I could really pay back, my friend. I'm going to get one for me and I'm gonna get one for them. Or perhaps you just want to drink it yourself. So the fundamental concept here is that as the price increases, the quantity demanded decreases. Soas price goes up, we want less of the product. Now. The important thing here is that when we're talking about quantity, demanded were strictly talking about the number of products or the number of goods of a certain category that were wanting based on the price. We're not talking about preferences or tastes or advertising. We're just talking about price. So when you hear, quantity demanded, were just talking about Price. And I've created a graph here to illustrate this, and we see that at the very top win, we buy a product that's $10. The quantity demanded is zero. That's simply too much for anyone to buy. No one is willing to pay $10 for this product Now, as the price moved down to $9 we see that one person is willing to pay for this product. And if you kind of think about this in technology, it makes sense. When a new product is launched, such as a new phone. A new graphic scored a new computer. It's very, very expensive, and the only people who want it and can afford it are very rich people. And there's not a lot of people that are demanding this product now, as the price comes down with time, more and more people buy this product, and that's exactly what's happening with this graph. As the price goes down and down and down, we see that the quantity demanded increases and increases. Now, remember when we're talking about quantity demanded, we're talking just with regards to Price. So the question that you might have is there's a lot of other variables other than price. Price can't be the only thing that determines demand, and you're absolutely correct. The critical distinction here is between quantity demanded and demand. When someone says quantity demanded, they're holding everything else constant. The phrase used in economics s centerist para vis and this means were holding everything else constant. So we're not running additional advertising. We're not having a change in consumer preferences, just focusing on price. Now, when we talk about demand as a whole, we talk about more things. So we talk about preferences. For example, 20 years ago, everyone wanted Pokemon cords. Now, hardly anyone does right, so it's not so much the change in price that's affecting the demand. It's the preferences of the consumers now. Other things that could affect the demand is the income of the consumers or the price of other goods, which we will discuss in a few minutes. Now. What I've shown here is a shift of the demand curve. So let's just compare the two. If we're talking about the blue line, this is our original demand curve. This is when we were talking about for $10. No one would buy the product and then for $9.1 personal by the product. This is the original demand curve and movements along that blue line or a shift in the correction. There are a change in the quantity demanded, so moving along a line is reflecting quantity demanded. Now the red line represents a shift ended demand curve as itself, so moving along the blue line is solely influenced by price. But the movement off the blue line to become the red line is influenced, perhaps by consumer preferences or a change in what consumers want. So again, it's very important to understand the difference between demand and quantity demanded. Now, one thing that can shift the demand curve is the income of the consumers. And economists generally talk about two types of goods. A normal good is a good that we buy more of when we have more money because that this is the norm for a product. For example, if we make more money, we go out to eat more often. If we make more money, we spend more on clothes. These are normal goods as our income, it increases. Our demand increases. Now if we get fired, if we get laid off our job and our income decreases, we have decreased demand for these goods. We try to save money. We don't go out to eat as much Now. An inferior good is the exact opposite. As income increases, the demand decreases, and as the income decreases, the demand increases. So let's think about this. Why would we buy less of a product when our income rises? Well, perhaps this product is something that we don't really like. Perhaps we're talking about potatoes or, you know, especially for college students in the United States. College students in the us eat a lot of Rama noodles. They're not very healthy, but they're cheap now. As these students graduate and make more money, they eat less Rama noodles and they Dittemore and more fancy dinners. They eat more seafood. They go out to eat more often. Now, as income decreases. Why would we have increased demand for these products? Will remember These products are cheaper products. So if we get fired from our job, we're going to be having less fancy dinners, which are the normal good. But we're going tohave mawr stay at home meals, mawr, perhaps cheap TV dinners or something like that. Now the important thing to notice is that a normal, good or an inferior good does not mean anything about the actual quality of the good itself . It simply refers to how the consumers want mawr or less of a good depending on their income . Now, another thing that we need to think about is other goods. So let's think about this. Just conceptual e. If I'm having a barbecue or a cookout, what am I likely tohave? I'm likely to have some hamburgers and hot dogs. I'm going to need some buns. Some catch up some mustard. Now let's suppose that the price of hot dogs goes up dramatically. What am I going to do? I can't afford is many hot dogs, but I tan yet more hamburgers. This is called a substitute good. So as the price of one good increases, the demand for the other good increases. So if him, if hot dogs increase in price, I buy less hot dogs and mawr hamburgers. Now a compliment. Good is a good that if the price of one rises than the demand for the other falls. So let's say that the price of hamburger buns increases dramatically now. I'm not just going to give the people in my barbecue a slab of meat. They need it on a bun. They need pickles. They need lettuce. They need all of this to be on a bun. So if I can't afford the buns that I'm going to buy less of the hamburgers as well because these two go together. So that's the example of a substitute. Remember, the substitute takes the place of another good, whereas a compliment is consumed in conjunction with the other. Good. Now all of this leads us to what's called a demand function. And remember when I showed the blue line and I said at $10 they by zero units of the product in it $9 that by one unit of the product. This is a line, and it has points. Now, if you remember from your math classes, we can use points on a line to create the equation of that line. And what we see is that companies can estimate the demand for their product by creating a demand function. Now. One specific example could be, for example, the quantity demanded of good X is equal to 100 plus two times the price of a substitute minus one times the price of the compliment, minus three times the price of the actual good. Now, if you're wondering, where did all these numbers come from? The simple answer is that I made them up for the analysis. Now, in real life, these numbers would come from a market analysis. In fact, I have another course where you can see how to perform a regression analysis. It's a completely free course where I teach you how toe estimate the factors that determine a company sales and how to predict sales. But just for this course, let's assume that this is the equation, the demand function for a specific product. So what does this mean? Let's suppose that we know the price of a substitute good is $12. The price of a certain compliment good is $5 the price of our product is $13 we want to predict how many units of this product are demanded. What we do is we substitute the prices into this equation, so we have 100 that remains the same instead of two times the price of the substitute. We now say two times 12 instead of minus one times the price of the compliment, we say, minus one times five and then, lastly, the price of the good X is $13 so we put all of this into the equation. We then do some simple arithmetic and get us the quantity demanded. Now demand functions can be as complex or a simple as you want to make them. This is merely to show that a demand function shows how much of a product is going to be demanded, given certain other variables in summary We've talked a lot about demand. We talked about the difference between quantity demanded and demand. Remember, if you don't get anything else from this lecture, remember that quantity demanded refers to changes in price. Demand refers to a shift of the demand curve based on consumer preferences or income or the prices of substitute goods. Further, we learned that a normal good is consumed mawr when incomes rise and a inferior good is consumed less when incomes rise. Lastly, we talked about the difference between a compliment and a substitute. A substitute is a good that takes the place of another Good. If I can't afford coffee, then perhaps I will buy tea. And then the compliment good is consumed with another good. So when I eat my hamburger, I also need a bun and I need ketchup and mustard. I hope the video has been useful, and I will see you next time. 3. Consumer Surplus: Hello. Welcome back to the managerial economics course in today's lesson, we're going to be talking about demand and consumer surplus, and the best way to think about consumer surplus is it's the value in a product that you don't actually have to pay for. And what do I mean by this? What I mean is, let's say that you just finished class and you're hungry or you just finished work. You're on your way home, and you are absolutely starving. Now you want a little snack to help, you know, keep you full while you're driving home and you would pay a dollar and 50 cents. That's the maximum you would pay for a bag of chips. Now, when you get to the vending machine, you see that this bag of chips on Lee costs $1. So even though you were willing to pay a dollar and 50 cents, even though you value to this bag of chips at a dollar and 50 cents, you only have to pay $1. This extra 50 cents is your consumer surplus. It's the value in a product that you don't actually have to pay for. So in this example, the maximum value U placed on a bag of chips was a dollar 50. That's the value to you. That's what you value these chips at, but the market. The equilibrium price is only a dollar, so you get to keep 50 cents of your money. You get the full value of the chips without actually paying the full value that you value them at. So remember that the surplus is the difference between the maximum price you would be willing to pay mainly actual price that you do pay. Now we can also think about this not just as an individual buying a bag of chips, but we can think in terms of the market as a whole. Now, as you remember, the demand curve is downward sloping. I've highlighted that in a thick blue line. Now we see that different consumers are willing to pay different prices. So, for example, one person the maximum price that they would be willing to pay is $10. But if they only have to pay $5 they have an individual consumer surplus of $5. Now perhaps someone else is only willing to pay $6 but they pay $5 they have a consumer surplus off $1. And then at the very bottom of this triangle, someone is Onley willing to pay $5 which is the exact price that they pay. In this case, they have no consumer surplus. And of course, there's some people that are only willing to pay $4 or $3. And they don't even buy the product because that the value they place on the product is less than the market price. So how do we calculate consumer surplus for the whole market? Essentially, it's adding together all of the individual surpluses and the quick way to do this is by realizing that this blue triangle called Consumer Surplus can be found using the area formula for a triangle, which is half the base times the height. So let's consider that 10 minus $5 the maximum price minus the actual price. We can call that the base of the triangle or the height of the triangle. So 10 minus five gives us five. Now the quantity sold is zero minus 10 so the quantity is 10. That's the height of the triangle, and then we multiply this by 100.5 So we see in this example that 10 minus five is five times 10 is 50 times 1/2 and the reason the half comes in is because this is just simply the formula for the area of a triangle. The half is going to be there. It doesn't matter what the price is. What the quantity is were always going to have that half because we have to use 0.5 in the area formula of a triangle. And in total, we see that the consumer surplus is $25 now, in summary, we've talked about consumer surplus, and consumer surplus is essentially the value in a product that we don't have to pay for. Now, as we move forward, we're also going to talk about supply and producer surplus. And once we get to markets and equilibrium, we will be discussing how we can calculate consumer surplus from the demand functions itself. I hope this video has been useful and I will see you in the next lesson. 4. Law of Supply: Hello. Welcome back to the course on managerial economics today. We're going to be talking about the law of supply. Now. The law of supply is very similar to the lob demand, except it's the exact opposite. So if you remember from the law of demand, we said that as price increases quantity demanded decreases. Now it's the exact opposite for quantity supplied. As the price increases, the quantity supplied increases. Now this should make sense intuitively. But let's think about it through some examples. Now let's say that you're in school, you're earning your degree and someone comes up to you and says, Hey, I have this great job offer. I'll pay you $3 an hour to work for me. Would you work for them? Of course not. Because $3 if you're in school, simply isn't worth your time. Now if someone pays you $45 an hour, not everyone, but there's a lot of people that would quit school and worked at this job because the money is so good, which illustrates that as price increases, more people will produce, more people will go to work for this company. Now let's think about producer surplus using a different example, let's say that the maximum are the minimum that you would be willing to work for us $20. Perhaps you you just don't want to work for anything less than $20 someone comes and give you an offer for $30. Your surplus is the difference between the minimum that you would work for and the actual offer that you get. In this case, it's $10. Now. When we think about the market as a whole, we have to remember that everyone isn't the same. Perhaps there's some people that would work for $3 an hour. Perhaps they're very poor. They really need the money now. There's other people who would only work for $8 or $9 an hour. So what we want to do is we want to calculate the producer surplus of the market as a whole , and the way that we do this is by finding the sum of the individual surpluses. So in the bottom left of this triangle, we have someone that's willing to work for $5 an hour. But the market price is $10 per hour, so their surplus is $5. Now, by contrast, at the top right corner we see that someone that's willing to work for $10 gets paid exactly $10 so they still make their money. But they don't have any additional producer surplus. And again, this is very similar to finding the consumer surplus because we're using the same formula for the area of the triangle. So the maximum the minimum price that someone would be willing to work for us $5 but the market prices 10 so 10 minus five is five times the quantity is 10 times 0.5. Remember, 0.5 is just from the formula. We need to find the area of a triangle. So in this example, the producer surplus of the market as a whole is $25. Now we're going to be going in the next few lectures to talk about equilibrium. Markets were going to be talking about how producer surplus and consumer surplus go together, how they interact together. I hope this video has been useful and I will see you in the next lesson. 5. Market Equilibrium: Hello. Welcome back to the course on managerial economics today. We're going to be talking about market equilibrium now. Market equilibrium is a magical place where supply equals demand. And as we see the supply curve is upward. Sloping people are willing to supply more of a product as the price increases and the demand curve is downward. Sloping people want to buy less as the price increases. Now what we want to do is we want to use equilibrium analysis to help find the price that's going to be paid in the market, and the quantity that's going to be sold in a market now for this example we have quantity demanded, equals 420 minus three times the price and quantity supplied is equal to five times the price minus 300. Now, remember that when we're in equilibrium, we can say that quantity demanded equals quantity supplied so we can set 420 minus three p equal to five p minus 300. Rearranging out your brackley gives us minus three p minus five p on the left side of the equation, minus 420 minus 300 on the right hand side. Some combining like terms, gives us minus eight. P equals minus 720 which gives us a final price of $90. Now we know that the equilibrium price will be $90. And the neat thing about a market that's an equilibrium is we can substitute this value back into either the quantity demanded function or the quantity supplied function, and we will get the exact same answer. So substituting for quantity demanded yes, for 20 minus three times 90 and quantity supplied gives five times 90 minus 300. In either case, we see that the equilibrium quantity is 150. Now, how do we put this all together? We know that the quantity sold and the quantity purchased is going to be 150. We know that the equilibrium price is going to be $90. Now, how do we take this a step further and solve for consumer surplus and producer surplus? Well, the way that we do this is by looking at the demand function and remember that our demand function as 420 minus three times the price, but what we need to do is find the maximum that consumers are willing to pay, and then we're going to subtract this with the equilibrium price. So the original demand function is quantity demanded equals 420 minus three times the price . The inverse demand function represents the price that consumers would pay for a given quantity. So simple rearranging of algebraic terms. We move the minus three p to the left side of the equation. We moved the quantity demanded to the right hand side, and we get three. P equals negative quantity demanded, plus for 20 which, when we divide by three, should give us P minus 1/3 quantity demanded. Plus 140 now toe. Find the max price that consumers would be willing to pay. We simply substitute the quantity demanded with zero. So we have price is equal to negative 1/3 time. See, though, which means that this drops out plus that constant of 140. So the maximum price that consumers would be willing to pay is 100 and $40 going back to our graph. We can now put $140 as the maximum price we can now subtract the actual price. So 140 minus 90 and then we see the quantity is 100 50 and then we multiply this by 500.5, which gives us $3750. So in this way we've been able to calculate consumer surplus. In summary, we talked about a market in equilibrium. And if you can take away only one thing from this entire lesson, remember that when a market is in equilibrium, the quantity demanded is equal to the quantity supplied. Now, that's important, because we can set two equations equal to each other and solved fourth the equilibrium, quantity and the equilibrium price. We can also use this information to find the inverse demand curve, and we can then solve for consumer surplus. In the next lesson, I'm going to be showing you how to solve for producer surplus using some of the same techniques. I hope the video has been useful and I will see you next time 6. Equilibrium Analysis Continued: Hello. Welcome back to the course. Managerial economics. Now, in today's lesson, we're continuing to talk about the market when it's in equilibrium. And as you remember from the last election, we had calculated the amount of the consumer surplus. But this time we want to look and see how this market, when it's an equilibrium, effects producers. So for this exercise, we're going to be calculating the producer surplus as denoted by this light blue colored triangle. Now, in order to calculate producer surplus, we need to find the inverse supply function. And as you remember from the original lessen, the quantity supplied was equal to five p minus 300. Now it's a very simple matter to rearrange this algebraic lee. Let's leave the five p on the left side of the equation and set that equal to quantity supplied, plus 300. Let's divide the five on both sides until we get prices equal 2.20 quantity supplied plus 60 now a way that we can check. This is by substituting values and what I mean by that is remember that we had already determined that the equilibrium price was 90 and the quantity was 150. So according to this inverse supply function, prices equal 2.20 quantity supplied, plus 60. So let's just go ahead and test that to make sure we did our algebra right and correctly derived this inverse supply function. Well, we know that at equilibrium the prices 90. So we'll put that in for the price. And then we know that the quantity is 150 so 90 is equal 2.2 times 150 plus 60. Now, if you were to calculate this out that you would find that both sides of the equation are equal to 90 which means that we correctly identified the inverse supply function now, actually, calculating the area of producer surplus is the same as calculating consumer surplus. We're just doing it from a different side of the coin, a different side of the market. So let's start out with Price is equal 2.20 times the quantity supplied plus 60. Now, if you remember from calculating consumer surplus, we need to find the equilibrium price. But we also need to find the minimum price at which producers would be willing to produce and the way that we can find the minimum price is by setting quantity supplied equal to zero. What is the price at which no producers were produced? So if we set quantity supplied equal to zero and multiply by point to receive it, that is still zero. So the minimum price is equal to $60. Now the equilibrium price is $90 so producer surplus is equal to 90 minus 60 times the quantity, which is 150. And then remember that we always multiplied by 0.5. This has absolutely nothing to do with the producers or the consumers. It's just the formula that we use to find the area of a triangle, and we get a total result of producer surplus equal to $2250. Now, once we put this all together, we can see that the blue area in this graph is the producer surplus. Remember again, this is found by using the area of a triangle. 90 is the equilibrium price minus 60 which is the minimum price at which producers would be willing to produce times the quantity times 0.5. Which brings us to our total of 2000 $250 in summary, this lesson has looked at how to k ocular eight. Producer surplus. Previous lessons have looked at consumer surplus. Taken together, we can find a market in equilibrium, and we can see the effects on both producers and consumers. I hope this video has been useful, and I will see you next time. 7. Price Ceiling: Hello. Welcome back to the class in managerial economics. Now, if you remember from the previous lesson, we talked about the magical world of market equilibrium. Quantity demanded equal, quantity supplied. Producers were having a producer. Surplus. Consumers were having a consumer surplus. Now, some things that can disrupt this balance is a price ceiling, and a price ceiling is the highest price at which a product can be sold. So let's say the gasoline prices skyrocket to $20 a gallon, and the government says you know what the's gasoline companies are ripping off people. So let's say that gasoline can only be sold for $5 a gallon now. Well, this is designed to help the consumers by lowering the price of gasoline. It also creates too negative situations. The first is a shortage, and the second is a dead weight loss. Now, before we actually talk about those two, I want to point out that a price ceiling on Lee affects the market if it's lower than the equilibrium price. And what I mean by that is if the government says that I can only sell my pair of shoes for $200 but I'm already selling them for $90. This doesn't really matter, because I would never sell them for more than $200 anyway, in order for a price ceiling to be effective. And when I say effective, I don't necessarily mean good for society. I mean good that it can impact the market in order for it to impact the market has to be less than the equilibrium price. So let's look at this graphically. In this example, we have the same graph from the previous lesson, but I've added a red line to to note that the maximum price that we can sell our product for is $80. Now remember the law of demand and the law of supply when we decrease the price to $80 that does two things first. Remember that as price decreases, quantity demanded increases. So consumers are wanting mawr at this new lower price than they were at the equilibrium price. Additionally, producers are willing to produce less because the law of supply tells us that his price decreases, quantity supplied decreases. So essentially we have a shortage. But we have two factors going in opposite directions to make this shortage even bigger. then it would have been. We have decreased supply and we have increased demand. Now we want to know exactly how much demand will increase by and how much supply will decrease by and the way we do this is by plugging the ceiling price into our demand and supply functions. So you can see the calculations quantity demanded was 420 minus three times the price. When we substitute $80 for the price that gives us a quantity demanded of 180 quantity supplied is equal to five times the price minus 300. When we substitute 80 that gives us a quantity supplied of 100. When we depict this graphically and fill in both of these quantities, we see that there is a shortage of 180 minus 100 or a shortage of 80 total units. Now we're going to talk about how to calculate the deadweight loss. But first, let me skip ahead just one slide and I want to kind of visualize this now when quantity supplied is on Lee 100 units. What does this mean? Well, it means that instead of 150 units. There's 50 units that consumers would have had that they're simply not able to buy. Perhaps they were even willing to pay more than $80 but they simply can't buy these anymore . So what we need to do is find the base and the height of this red triangle and use the formula for the area of a triangle to calculate the deadweight loss. So in order to do this, we need to know the base and the height. Now we can calculate this by finding the highest price that consumers would pay, and we see that this is quantity demanded equals 420 minus three times the price. Now we know that the shortage production is only going to be 100 units. So let's substitute that in for quantity demanded. And we have 100 equals 420 minus three times the price. Doing some simple algebra, rearranging the equation we get. The highest price is, ah, $106.67. So let's skip forward really quick, and we see that the top green star is $106.67 whereas the lowest price that a consumer can pay is $80. Subtracting thes gives us the base of the pyramid. Now the height of the pyramid is the difference between the old equilibrium quantity and the current quantity. So we have $106.67 minus $80 times 150 minus 100 times 1000.5. This gives us to a total deadweight loss of $667.75. In summary. We've learned what a price ceiling does. Ah, price ceiling is intended to help consumers by lowering the price that they pay. However, we see that there is also some negative side effects. There is a shortage that's generated because consumers want to consume or at the lower price, whereas producers want to produce less. We've also seen how there can be a dead weight loss. I hope this video has been useful and I will see you next time 8. Price Floor: Hello. Welcome back to the course in managerial economics today, we're going to be discussing a price floor. Now. A price floor is the absolute opposite of a price ceiling. A price floor is the lowest legal price at which a product can be sold. Now this is typically done to help producers. For example, if I'm a farmer who grows corn, the government might say, You know what? You're doing really hard work, and the market isn't rewarding you for your hard work. So what we're going to do is we're going to put a price floor, and your corn is always going to sell for a bare minimum of a certain amount. Now, while this helps some producers, it also creates a surplus and a dead weight loss, both of which we will discuss in this lesson. Now we're using the same example that we've been using for the past few lessons in which we have the green and blue lines intersecting to form a market equilibrium. We have a consumer surplus and a producer surplus, but the government has put a $120 price floor depicted by this red line. This moves both quantity demanded and quantity supplied away from their equilibrium values and creates a surplus. Now, remember the laws of demand and the laws of supply. They tell us that has the price of something goes up? Consumers want to consume less. The quantity demanded decreases. Now, On the other hand, producers want to produce more because they want to capture that higher price. So essentially we have movement away from the equilibrium in two separate directions. Consumers are demanding less and producers are producing mawr, which leaves us with a surplus. Now we can calculate the surplus mathematically by using the quantity demanded and quantity supplied functions. Remember that quantity demanded is 420 minus three times the price. Now, when we substitute $120 which is the floor price into that equation, we get a quantity demanded of 60 units and when we substitute the floor price into our quantity supplied equation, we get a quantity supplied of 300 units, which is depicted as a shortage. So they're shortage. Here is 300 minus 60 now. Additionally, we also have a dead weight loss because consumers simply don't want to buy any products they can not buy any products that are priced less than $120. So remember, in the market and equilibrium, some people would be willing to pay 140 someone willing to pay 110. And then we got to the equilibrium price with the price floor were only allowed to pay to $120. So this creates the deadweight loss. And just like we did in the last lesson, we calculate this by finding the area of the dead weight loss. Now, the base of this area is the difference between two different prices the floor price and the price that producers would be willing to produce it. So I know this is kind of tricky. Let me try to explain it a different way. We know that the quantity demanded under this price floor is going to be 60 units. So what we want to do is we want to calculate the price at which producers would be willing to produce this quantity. So substituting the short the surplus quantity of 60 units into our inverse supply function , we get a price of 72 so 100 minus 72 is the base of our pyramid. The height of our pyramid is the difference between the quantity demanded with the surplus and the quantity demanded under equilibrium. Conditions 150 minus 60 gives US 90. Calculating the area gives a deadweight loss of $2160. Now I hope this video has been useful, and I understand that calculating surplus and shortage this can be a little bit complicated . So if you have to go through the video again and listen a few times, that's fine. I hope the video has been useful and I will see you in the next lesson.