At a pen price of € 2.28, the supplier agrees to produce 7,500 pens and the demand for pens is 7,900. At a price of € 2.37, the supplier agrees to produce 7,900 pens, but the demand is 7,800. The demand and supply functions of pens are known to be linear. Construct supply and demand equations and find a balance between price and quantity.

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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.