Surplus and Shortage

Surplus and Shortage

By Dewitt Johnson

A situation where ​the market looks for:

-stable prices

​-The quantity supplied is equal to the quantity demanded

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Markets look for equilibrium

-​The price that brings equilibrium to the market.

​-​It is usually found through "trial and error".

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​Equilibrium Price

-A situation where demand is lower than supply.​

-Caused by:

High prices

Changes in ​consumer taste​

​Over production

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​Surplus in the Market

​

-Lower prices on surplus goods​

​​​-Cuts in production​​

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Remedies for Surplus​

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Multiple Choice

A designer raises the price of jeans by 50%. This will likely lead to a:

• Shortage

• Surplus

Multiple Choice

Define Surplus

• a consumer's willingness to pay a set price for a specific good or service

• the amount of product that a producer is willing and able to sell in the marketplace

• more items available for sale than people want to purchase

• more people want an item than is available for purchase

​-A situation where demand is greater than supply.

-​Caused by:

Lower than normal prices​

​Shortages of resources

Natural disasters​

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Shortage in the Market

-Raise prices

-​Increase production​

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​Remedies for Shortage

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Multiple Choice

A limited quantity of popular dolls are released right before Christmas. This will likely lead to a:

• Shortage

• Surplus

Multiple Choice

Define Shortage

• a consumer's willingness to pay a set price for a specific good or service

• the amount of product that a producer is willing and able to sell in the marketplace

• more items available for sale than people want to purchase

• more people want an item than is available for purchase

-Price Ceilings

-Price Floors​

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Two artificial market conditions​

​

-Maximum legal price that can be charged for a product.

-The price is lower than equilibrium.

-Creates shortages, but it's felt necessary ​​for equity.

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Price Ceiling

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Example of Price Ceiling

​-Some apartment buildings in NYC have rent controls.

-This lowers costs and makes apartments more affordable.

-These apartments are limited.​

Multiple Choice

When a price ceiling is in place keeping the price below the market price, what’s larger: quantity demanded or quantity supplied?

• Quantity demanded

• Quantity supplied.

• Indeterminate with the given information.

• Neither

​-Minimum legal price that can be charged for a product.

-The price is higher than equilibrium.

-Creates a surplus, but it's felt necessary ​​for equity.

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Price Floors

​-Minimum wage is the lowest level of pay allowed.

-Some economists think it's above equilibrium and should be allowed to go lower.

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Example of a Price Floor

Multiple Choice

An effective price floor must be set above equilibrium, resulting in:

• a shortage
• a surplus
• limited choices
• None of the above

Multiple Choice

At ___ the price, neither a surplus or a shortage exists

• equilibrium

• consumer surplus

• producer's surplus

• dead weight