Shortage vs. Surplus
Shortage vs. Surplus
Let’s start with some basic concepts…
• “A shortage exists at a market price when
the quantity demanded exceeds the
quantity supplied.” (i.e., excess demand)
• “A surplus exists at a market price when
the quantity supplied exceeds the quantity
demanded.” (i.e., excess supply)
(Dodge 62)
Increase in Demand
P
S
17
2.79
Shortage
D1
D
q
q1
Q
Winter Blizzard! The price of
rock salt “skyrockets” to
$17/bag.
Initial equilibrium price was
$2.79/bag. “With the
forecast of a blizzard,
consumers expect a lack
of future availability for”
rock salt.
Result = an increase in the
demand for rock salt
creating a shortage.
Market cure = a higher
equilibrium price $17/bag
(Dodge 63)
Decrease in Demand
P
Surplus
S
18,000
p1
D
D1
q1
q
Q
Recession caused a
decrease in the demand
for cars (a normal good)
Manufacturers discounted
sticker prices and offered
a zero interest rate,
along with other
incentives.
When the demand fell there
was a surplus of cars at
the original price.
Market cure = lower the
equilibrium price;
resulting in fewer cars
being purchased and
sold.
(Dodge 63)
Remember!
• “When demand increases, equilibrium
price and quantity both increase.”
P
&
Q
• “When demand decreases, equilibrium
price and quantity both decrease.”
P
&
Q
(Dodge 64)
Increase in Supply
P
S
“Advancement in
computer technology
and production
methods”
Increased the supply of
laptop computers =
surplus of laptops
Market cure allow the
price to fall = more
demand.
Surplus
4000
S1
p1
D
q
q1
Q
(Dodge 64)
Decrease in Supply
P
S
p1
S1
20
D
Shortage
q
q1
Q
“Geopolitical conflict
in the Middle East
usually shows the
production of
crude oil.”
A decrease “in the
global supply of
oil” = “a shortage
of crude oil in the
global market”
Result = higher
prices
(Dodge 64)
Remember!
• When supply increases, equilibrium price
decreases and quantity increases.
P
&
Q
• When supply decreases, equilibrium price
increases and quantity decreases.
P
&
Q
Works Cited
• Dodge, Eric R. “5 Steps to a 5 AP
Microeconomics/ Macroeconomics”.
New York, NY: McGraw-Hill. 2005.