when quantity supplied is greater than quantity demanded Surplus Example If P 5 then Q D 9 lattes and Q S 25 lattes resulting in a surplus of 16 lattes ID: 1028360
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1. Part II
2. PQDSSurplus (a.k.a. excess supply):when quantity supplied is greater than quantity demandedSurplusExample: If P = $5, then QD = 9 lattesand QS = 25 lattesresulting in a surplus of 16 lattes0
3. PQDSSurplus (a.k.a. excess supply):Facing a surplus, sellers try to increase sales by cutting price.This causes QD to riseSurplus…which reduces the surplus. and QS to fall… 0
4. PQDSSurplus (a.k.a. excess supply):Facing a surplus, sellers try to increase sales by cutting price.This causes QD to rise and QS to fall. SurplusPrices continue to fall until market reaches equilibrium. 0
5. What happens to price when there is a surplus?SurplusSuppliers cannot sell all of their goodsInventory growsExpensive to storeWhat happens to price?It lowers to the equilibrium price
6. PQDSShortage (a.k.a. excess demand):when quantity demanded is greater than quantity suppliedExample: If P = $1, then QD = 21 lattesand QS = 5 lattesresulting in a shortage of 16 lattesShortage0
7. PQDSShortage (a.k.a. excess demand):Facing a shortage, sellers raise the price,causing QD to fall…which reduces the shortage. and QS to rise,Shortage0
8. PQDSShortage (a.k.a. excess demand):Facing a shortage, sellers raise the price,causing QD to falland QS to rise.ShortagePrices continue to rise until market reaches equilibrium. 0
9. What happens to price when there is a shortage?ShortagePrice is below equilibrium causing a high demand for the good and a low supplyBuyers will pay higher prices for goodsHigher prices motivate suppliers to produce morePrice will rise until it reaches equilibrium
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11. How do shortages and surpluses effect equilibrium price and quantity?You will need to be able to analyze a shift and explain whether Ep and Eq increased or decreasedSee examples on the next few slides
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13. Supply: Increase Supply: No ChangeDemand: No Change Demand: DecreaseD1D2EpEqEp EqS1S2
14. Example of a Double ShiftSupply: DecreaseDemand: IncreaseEpEqE1D1D2S1S2E2Indeterminate