Review Figure 3.4 again. Suppose the price ofgasoline is $1.00. Will the quantity demanded be loweror higher than at the equilibrium price of $1.40 pergallon? Will the quantity supplied be lower or higher? Isthere a shortage or a surplus in the market? If so, of howmuch? Excess supplyor surplus$2.20$1.80An above-equilibrium priceEquilibrium priceA below-equilibrium price$1.40$1.20$1.00Excess demandor shortage$0.60300 400 500600700800900Quantity of Gasoline (millions of gallons)Figure 3.4 Demand and Supply for Gasoline The demand curve (D) and the supply curve (S) intersect at theequilibrium point E, with a price of $1.40 and a quantity of 600. The equilibrium is the only price where quantitydemanded is equal to quantity supplied. At a price above equilibrium like $1.80, quantity supplied exceeds thequantity demanded, so there is excess supply. At a price below equilibrium such as $1.20, quantity demandedexceeds quantity supplied, so there is excess demand.P ($ per gallon)

Demand and supply forces in the market interact with each other to determine the market equilibrium…

Answered: Excess supply or surplus $2.20 $1.80 An…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section: Chapter Questions

Problem 3PA

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Review Figure 3.4 again. Suppose the price of
gasoline is $1.00. Will the quantity demanded be lower
or higher than at the equilibrium price of $1.40 per
gallon? Will the quantity supplied be lower or higher? Is
there a shortage or a surplus in the market? If so, of how
much?

Excess supply
or surplus
$2.20
$1.80
An above-equilibrium price
Equilibrium price
A below-equilibrium price
$1.40
$1.20
$1.00
Excess demand
or shortage
$0.60
300 400 500
600
700
800
900
Quantity of Gasoline (millions of gallons)
Figure 3.4 Demand and Supply for Gasoline The demand curve (D) and the supply curve (S) intersect at the
equilibrium point E, with a price of $1.40 and a quantity of 600. The equilibrium is the only price where quantity
demanded is equal to quantity supplied. At a price above equilibrium like $1.80, quantity supplied exceeds the
quantity demanded, so there is excess supply. At a price below equilibrium such as $1.20, quantity demanded
exceeds quantity supplied, so there is excess demand.
P ($ per gallon)

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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