Download Shortages and Surpluses

2.d.
Shortages and Surpluses
A shortage occurs when the quantity demanded is greater than the quantity supplied.
Price
Supply
Market Equilibrium
$10
Shortage of 2
$6
Demand
2
3
4
Quantity
(Pizza)
2.d.1. According to the graph above, the market equilibrium is when the price is $10 and the quantity demanded is 3.
However, at a price of $6, the quantity of pizza demanded is 4 and the quantity of pizza supplied is only 2. This
means that the suppliers are willing to supply less pizza while buyers want more pizza because of the lower price.
This causes a shortage of 2.
Price
Supply
Market Equilibrium
$10
$6
Demand
Quantity
(Pizza)
2
3
4
2.d.2. When shortages occur, and there are no price ceilings or floors, suppliers raise prices (from $6 to $10),
causing the quantity demanded to move down on the demand curve (from 4 to 3), and quantity supplied to move up
on the supply curve (from 2 to 3), until price and quantity is back at market equilibrium.
A surplus occurs when the quantity supplied is greater than the quantity demanded.
Price
Supply
Surplus of 2
$14
$10
Market Equilibrium
Demand
2
3
Quantity
(Pizza)
4
2.d.3. According to the graph above, the market equilibrium is when the price is $10 and the quantity demanded is 3.
However, at a price of $14, the quantity of pizza supplied is 4 and the quantity of pizza demanded is only 2. This
means that the suppliers are willing to supply more pizza and the buyers are willing to buy less pizza because the
prices are higher. This causes a surplus of 2.
Price
Supply
$14
$10
Market Equilibrium
Demand
2
3
4
Quantity
(Pizza)
2.d.4. When surpluses occur, and there are no price ceilings or floors, supplier’s lower prices (from $14 to $10),
causing the quantity demanded to move up on the demand curve (from 2 to 3), and quantity supplied to move down
on the supply curve (from 4 to 3), until price and quantity is back at market equilibrium.