SURPLUS, SHORTAGE & EQUILIBRIUM
1. READ THIS SECTION
There are 3 states that a market can be in at any one time, allowing an analogy with the story of "Goldilocks and the Three Bears."
* When DEMAND is greater than available SUPPLY for a product or service, there is a SHORTAGE (too little is available to meet demand) * When SUPPLY is greater than DEMAND for that product, there is a SURPLUS (there is more available than people want) * When DEMAND and SUPPLY are equal (more or less), there is EQUILIBRIUM (no extra product left over) |
Click on any of the above slides to view them more easily.
2. WATCH THIS:
"The Equilibrium Price and Quantity" (Marginal Revolution University)
This video provides an excellent explanation of how the EQUILIBRIUM PRICE and EQUILIBRIUM QUANTITY (where the demand and supply curves intersect) are formed by market forces:
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3. REVIEW THIS: Each of the 3 market states send SIGNALS to producers and sellers that affect the allocation of resources, as well as the prices charged for products
Every price point ABOVE the equilibrium price will generate a surplus. The farther above the equilibrium price it is, the larger the surplus (because supply is increasingly larger than demand). Every price point BELOW the equilibrium price will result in a shortage.
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This graph shows how to label a surplus or shortage price point on a graph. The only thing to add would be the specific amount of the surplus or the shortage at that price point, which is determined by subtracting the smaller number from the larger.
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4. GRAPH THIS (and WATCH the video if you get stuck on how to graph it)
ASSIGNMENT: Problem Set 2.1Complete this assignment on a piece of paper. You do not need to rewrite the questions; you can simply write the question numbers and your answers, as well as draw the supply and demand graph (using the data table in the assignment). When you are finished, take a clear photo of the assignment and upload it to the file upload assignment on Canvas.
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This video is useful in demonstrating how to create a graph with both a demand curve and a supply curve, and how to label the resulting equilibrium price and equilibrium quantity, when the curves intersect.
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5. STUDY THIS: QUIZLET STUDY SET for supply & demand terms, as well as equilibrium, shortage and surplus |