3.2 Suppose the market demand for a cup of cappuccino 18 given by QD = 24-4P and the market supply for a cup cappuccino is given by Qs = 8P-12, where P = price (per cup). of a. Graph the supply and demand schedules for cappuccino. b. What is the equilibrium price and equilibrium quantity? c. Calculate consumer surplus and producer surplus, and identify these on the graph.

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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.