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

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

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

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

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

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

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

8. Government Intervention
Types of Government Intervention:
Price Ceilings
Price Floors

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

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

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

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

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

14. 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