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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

If the price is above line equilibrium level, would you predict a surplus or a shortage? If line price is below the equilibrium level, would you predict a surplus or a shortage? Why?

To determine

When can we predict a surplus or a shortage of a commodity?

Explanation

Consider the following diagram, the demand and supply curves are intersecting at point ‘E’ where equilibrium price level is ‘P’.

If the prices are less than equilibrium price level, ‘P-1’, then as we can see in the diagram, there will be a situation of shortage or excess demand. In this situation, the quantity demanded is greater than the quantity supplied. This is because the price level is lower than equilibrium price level and more numbers of buyers will demand for the product but less number of sellers are willing to supply at this price level. So, there will be shortage of the product in the market...

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