Question

When quantity demanded is greater than quantity supplied, there \((\mathrm{LOS}, 6)\) a) is a shortage b) is a surplus c) may be cither a shortage or a surplus d) may be neither a shortage nor a surplus

Short answer

The correct answer is a) is a shortage, as the given situation fits the definition of a shortage, where quantity demanded is greater than quantity supplied.

Step-by-step solution

Definition of Shortage and Surplus

A shortage occurs when the quantity demanded is greater than the quantity supplied, which means that the demand is high, but the supply is not sufficient to meet that demand. On the other hand, a surplus occurs when the quantity supplied is greater than the quantity demanded. In this situation, there is more supply than the actual demand.

Comparing the given situation to the definitions

Since the exercise states that the quantity demanded is greater than the quantity supplied, it matches the definition of a shortage. Hence, the correct option is: a) is a shortage

Key concepts

Quantity Demanded

Understanding the quantity demanded is fundamental when analyzing market behavior. The term refers to the total amount of a good or service that consumers are willing to purchase at a given price point during a certain period. It is important to recognize that quantity demanded is not just how much people want in a general sense, but specifically how much they are willing and able to buy at particular prices.

In general, as the price of a good increases, the quantity demanded tends to decrease, and vice versa. This relationship is depicted in demand curves, which typically slope downwards from left to right. Various factors can shift demand curves, such as changes in consumer preferences, income levels, the prices of related goods, and expectations about the future.

Quantity Supplied

Parallel to quantity demanded, quantity supplied refers to the amount of a particular good or service that producers are willing to sell at a given price level over a specific time frame. Supply represents the producer's side of the market, and it varies directly with the price.

Unlike demand, as the price of a good or service increases, producers are typically more inclined to supply more of it to the market because they can achieve higher revenue. This results in the supply curve having an upward slope from left to right. Factors that can influence supply include production costs, technology advances, price expectations, and the prices of inputs required for production.

Market Equilibrium

Market equilibrium occurs at the point where the quantity demanded of a good equals the quantity supplied. This balance results in a stable market price, where the intentions of buyers and sellers align, and there is no tendency for the price to change.

In an equilibrium state, there is neither a shortage nor a surplus. But if external effects lead to a shift in either the demand or supply curve, the equilibrium price and quantity will change. In a free market, forces tend to move the price toward the equilibrium, through the adjustment of the levels of supply and demand in response to price changes. An understanding of market equilibrium helps explain how prices are set in different markets and how those prices can change in response to shifts in demand or supply.