Surpluses, Shortages, & Government, oh my! Unit 2: Supply and Demand

Shortages Shortages exist when the quantity demanded is greater than the quantity supplied. Qd > Qs Occurs when price is set BELOW the equilibrium price

Shortage S Price D Quantity Peq Qeq There is a shortage when price is set BELOW equilibrium. Qd > Qs P Qd Qs

Shortage S Price D Quantity The triangle represents the shortage. Peq Qeq Qd Qs The triangle represents the shortage. Qd > Qs

Surpluses Surpluses exist when the quantity supplied is greater than the quantity demanded. Qs > Qd Occurs when price is set ABOVE the equilibrium price

Surplus S Price D Quantity Peq Qeq There is a surplus when price is set ABOVE equilibrium. Qs > Qd P Qd Qs

Surplus S Price D Quantity The triangle represents the surplus. Peq Qeq P Qd Qs The triangle represents the surplus. Qd > Qs

Government Intervention Types of Government Intervention: Price Ceilings Price Floors

Price Ceilings Establishes a MAXIMUM price for a particular good Producers cannot charge ABOVE this price

Effective Price Ceiling Quantity D S Peq Qeq An effective price ceiling is set BELOW equilibrium price. P

Price Floors Establishes a MINIMUM price for a particular good Producers cannot charge BELOW this price.

Price Floors Minimum wage: The lowest amount an employer can pay a worker.

Effective Price Floor S Price D Quantity Peq Qeq An effective price floor is set ABOVE equilibrium price. P

Price Ceilings & Floors Nothing can go above the ceiling. Nothing can go below the floor. Price Quantity D S Peq Qeq Price Floor Price Ceiling