If Honda Fits and Toyota Versas are substitutes, what happens to the quantity supplied and price of a Honda Fit if the Toyota Versa goes up in price? A. The quantity supplied of Honda Fits decreases, but the price of Honda Fits increases. B. The quantity supplied of Honda Fits increases, but the price of Honda Fits decreases. C. Both the quantity supplied and price of Honda Fits increase. D. Both the quantity supplied and price of Honda Fits decrease.

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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.