Consider the market for paper towels where the supply curve is upward sloping and the demand curve is downward sloping.  (Hint: Draw the graphs to answer the questions below.)   Suppose there is an effective price ceiling applied on this market. What happens to the consumer surplus as a result?       2. Suppose there is an effective price floor applied on this market. What happens to the consumer surplus as a result?

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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.