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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.