Question

1.What is the relationship between the price of the product and the shortage of the product? What is the relationship between the price of the product and a surplus of the product?

2. Explain using a supply and demand graph, how a freeze in a vegetable crop will affect the equilibrium price and quantity.

3.You observed that the equilibrium price has decreased and the equilibiruim quntity has increased. What supply and demand conditions would best explain this outcome?

4. If increase in demand for gasoline outweights the decrease in the supply of gasoline, what os the most likely effect on the equilibruim proce and quantity? Explainand show answer with a graph.

Answer 1

1. As the price of the product rises the shortage of the product or the excess demand falls. As the price of the product falls then the surplus will fall.

2. Given that there is a freeze in a vegetable crop then there will be an excess demand for that crop as the supply of that crop will fall as the supply curve shifts leftwards. The price will then be below the equilibrium price where demand exceeds the supply and so price has to increase to restore equilibrium.

3. This would best explain an excess supply where the supply exceeds the demand. In such a situation as the price falls the quantity will be higher until the surplus is eliminated from the market.

4. An increase in the demand for gasoline will mean that the demand curve shifts rightwards causing a rise in the price and the quantity. A decrease in the supply will mean that there will be an increase in the price and a fall in the quantity. If the rise in demand outweighs the fall in supply, the equilibrium price will rise and the quantity will rise also while the quantity rises. This is shown in the graph below.