Cambridge International as and a level Economics Ebook

Figure 2.18 
An unchanged equilibrium price and a changed 
equilibrium quantity
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Cambridge International AS Level Economics

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producers. Th
is so-called 
transmission of preferences
is again automatic. It is sometimes said that ‘consumers 
vote with their feet’. Th
is means that if consumers do not 
buy a particular product because it is not liked or it is 
too expensive, then this message is transmitted back to 
producers. Th
eir reaction should be one of improving the 
product, reducing its price or both if they wish to stay in 
business.
Transmission of preferences: 
the automatic way in which 
the market allows the preferences of consumers to be made 
known to producers.
KEY TERM
Th
ere are very valid reasons why governments fi nd it 
necessary to intervene in the natural workings of the 
market mechanism. Th
is is invariably because the best 
allocation of resources is not being achieved when the 
market mechanism is left free to operate on its own.
Equilibrium and eff iciency: 
The equilibrium position 
in a market is aff ected by a shift in the demand curve, a 
shift in the supply curve or a combination of both. The 
outcome is that these changes lead to price changes 
through the workings of the free market mechanism. 
When back in equilibrium, resources are being eff iciently 
allocated.
KEY CONCEPT LINK
TOP TIP
There is always a time lag involved when market 
conditions change.
Consumer surplus
Th
e underlying principles behind the demand curve are 
relatively simple to understand. Th
ey are also ones that 
many of us follow in our daily lives. For instance, when 
a product is on ‘special off er’ in a local shop, and its price 
has been reduced, more will be demanded and purchased.
For any good or service, however, there are always 
some people who are prepared to pay above the given price 
to obtain it. Some of the best examples where this happens 
are in the cases of tickets to popular music concerts or, 
in England, to watch Premier League football clubs, such 
as Liverpool or Manchester United, or in India to see a 
major Test Cricket match where all tickets are sold out. 
Th
e stated price may well be $40 per ticket, but there will 
always be some people who are willing to pay more than 
$40 to obtain a ticket. To the economist, such situations 
introduce the concept of