Shortage vs Surplus Shortage vs Surplus Lets start

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Shortage vs. Surplus

Shortage vs. Surplus

Shortage vs. Surplus Let’s start with some basic concepts… • “A shortage exists at

Shortage vs. Surplus Let’s start with some basic concepts… • “A shortage exists at a market price when the quantity demanded exceeds the quantity supplied. ” (i. e. , excess demand) • “A surplus exists at a market price when the quantity supplied exceeds the quantity demanded. ” (i. e. , excess supply) (Dodge 62)

Increase in Demand P S 17 2. 79 Shortage D 1 D q q

Increase in Demand P S 17 2. 79 Shortage D 1 D q q 1 Q Winter Blizzard! The price of rock salt “skyrockets” to $17/bag. Initial equilibrium price was $2. 79/bag. “With the forecast of a blizzard, consumers expect a lack of future availability for” rock salt. Result = an increase in the demand for rock salt creating a shortage. Market cure = a higher equilibrium price - $17/bag (Dodge 63)

Decrease in Demand Recession caused a decrease in the demand for cars (a normal

Decrease in Demand Recession caused a decrease in the demand for cars (a normal good) Manufacturers discounted sticker prices and offered a zero interest rate, along with other incentives. When the demand fell there was a surplus of cars at the original price. Market cure = lower the equilibrium price; resulting in fewer cars being purchased and sold. P Surplus S 18, 000 p 1 D D 1 q Q (Dodge 63)

Remember! • “When demand increases, equilibrium price and quantity both increase. ” P &

Remember! • “When demand increases, equilibrium price and quantity both increase. ” P & Q • “When demand decreases, equilibrium price and quantity both decrease. ” P & Q (Dodge 64)

Increase in Supply P S “Advancement in computer technology and production methods” Increased the

Increase in Supply P S “Advancement in computer technology and production methods” Increased the supply of laptop computers = surplus of laptops Market cure allow the price to fall = more demand. Surplus 4000 S 1 p 1 D q q 1 Q (Dodge 64)

Decrease in Supply P S p 1 S 1 20 D Shortage q q

Decrease in Supply P S p 1 S 1 20 D Shortage q q 1 Q “Geopolitical conflict in the Middle East usually shows the production of crude oil. ” A decrease “in the global supply of oil” = “a shortage of crude oil in the global market” Result = higher prices (Dodge 64)

Remember! • When supply increases, equilibrium price decreases and quantity increases. P & Q

Remember! • When supply increases, equilibrium price decreases and quantity increases. P & Q • When supply decreases, equilibrium price increases and quantity decreases. P & Q

Works Cited • Dodge, Eric R. “ 5 Steps to a 5 AP Microeconomics/

Works Cited • Dodge, Eric R. “ 5 Steps to a 5 AP Microeconomics/ Macroeconomics”. New York, NY: Mc. Graw-Hill. 2005.

Consumer surplus And Producer surplus Consumer surplus WhatConsumer surplus And Producer surplus Consumer surplus What
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