1. Consider the following supply and demand model of the world tea market (in billions of pounds): Price per Pound Quantity Supplied Quantity Demanded $0.38 $0.37 $0.36 $0.35 $0.34 1. 1,500 1,000 700 600 550 525 600 700 900 1,200 1. Is there a shortage or a surplus when the price is $0.38? What about $0.34? 2. What are the equilibrium price and the equilibrium quantity? 3. Graph the supply curve and the demand curve.

1. Consider the following supply and demand model of the world tea market (in billions of pounds): Price per Pound Quantity Supplied Quantity Demanded $0.38 $0.37 $0.36 $0.35 $0.34 1. 1,500 1,000 700 600 550 525 600 700 900 1,200 1. Is there a shortage or a surplus when the price is $0.38? What about $0.34? 2. What are the equilibrium price and the equilibrium quantity? 3. Graph the supply curve and the demand curve.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter4: Demand, Supply, And Markets

Section: Chapter Questions

Problem 3.4P

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Concept explainers

Market Surplus and Shortage Analysis

In everyday language, a “surplus” indicates that there is an excess of something, while a “shortage” means that there is a scarcity of it. In economics, “market surplus” refers to the condition where the quantity of a certain good more available than what is required or “demanded” by the market. In the same way, a “market shortage” refers to the condition where the quantity of a certain good is less available than what is “demanded” by the market. If quantity in demand is written as Qd and quantity that is supplied is written as Qs, then, the condition Qs > Qd indicates market surplus and condition Qd > Qs indicates market shortage.

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1. Consider the following supply and demand model of the world tea market (in billions of pounds):
Price per Pound Quantity Supplied Quantity Demanded
$0.38
$0.37
$0.36
$0.35
$0.34
1.
1,500
1,000
700
600
550
525
600
700
900
1,200
1. Is there a shortage or a surplus when the price is $0.38? What about $0.34?
2. What are the equilibrium price and the equilibrium quantity?
3. Graph the supply curve and the demand curve.
4. Show how the equilibrium price and quantity can be found on the graph.
5. If there is a shortage or surplus at a price of $0.38, calculate its size in billions of pounds and show it on the
graph.

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