A surplus is a condition where the quantity supplied by producers exceeds the quantity demanded by consumers. A shortage is a condition where the quantity demanded is greater than the quantity supplied.
C
Draw the new demand curve.
A
See solution.
B
Surplus:
Shortage:
C
The equilibrium point is higher than before and it also shifts to the right.
Practice makes perfect
The supply and demand model helps understand how the price of a product changes in a market. The supply curve represents the quantity that suppliers are willing to produce at various prices, and the demand curve represents the quantity consumers are willing to buy at various prices.
From the graph, we can see that the supply curve increases at a faster and faster rate. This means that as the quantity of the product increases, the price also increases at a higher rate. The opposite occurs from the demand curve because with the increase in quantity, the price of the product decreases at a slower and slower rate.
We want to know which part of the given graph represents a surplus. The term surplus represents an excess of supply over demand. We can see that the equilibrium point occurs when the supply equals the demand. It is the point of intersection of the curves.
Let's assume that a price occurs above this equilibrium point.
At this price, suppliers prefer to produce more, while consumers prefer to buy less. This results in a surplus in this market. Therefore, the region above the equilibrium point represents a surplus.
Now, we want to find which part represents a shortage. A shortage is a condition where the quantity demanded is greater than the quantity supplied. At a price below the equilibrium price, producers want to produce less and consumers want to consume more.
Notice that the demand curve is greater than the supply curve in the region left to the equilibrium point.
Therefore, this region represents a shortage.
Consider that the demand for a product suddenly increases, causing the entire demand curve to shift to the right.
Notice that if the demand curve shifts to the right, the equilibrium point is higher than before and also shifts to the right. This means that the balance in the market will result in a higher quantity of products and at a higher price.
