Check Your Understanding 1. a) Copy Figure 4.10 (below) into your notebook and fill in the Surplus/Shortage column. What is the equilibrium price? 2. Economists are not generally supportive of governments interfering in markets in order to set prices. Using the example in question 1, explain what undesirable results might occur if the school simply declared a price for cafeteria foods. b) Draw a demand and supply graph for this information. Shade in the area that represents a surplus in this market and the area that represents a shortage when market prices of $1.80 and $1.00 are considered. Quantity Surplus/ Quantity Demanded Price Supplied Shortage $2.00 100 190 $1.80 120 180 $1.60 140 170 $1.40 160 160 $1.20 180 150 $1.00 200 140 $0.80 220 130 Figure 4.10 Demand and supply for hot dogs in a school cafeteria.

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