Question

Identify whether a shortage, a surplus, or equilibrium exists in the following settings: a. Fewer students apply for the first-year class at college \(X\) than spaces available. b. People who wanted to attend a baseball game were told that tickets had sold out the day before c. Houses for sale used to stay on the market for two months before they were sold. Now they are staying on the market for up to six months, and they still aren't selling.

Short answer

a. Surplus, b. Shortage, c. Surplus

Step-by-step solution

Analyze Situation a

In this scenario, fewer students applied for the first-year class at college \(X\) than spaces available. It implies that the supply (spaces available at the college) is more than the demand (students applying), indicating a surplus.

Analyze Situation b

In this scenario, people who wanted to attend a baseball game couldn't because tickets had sold out the day before. This implies that the demand to attend the game (people who wanted tickets) was more than the supply (available tickets), indicating a shortage.

Analyze Situation c

In this scenario, houses that used to be sold in two months are now staying on the market for up to six months and they still aren't selling. This suggests that the supply (houses for sale) is exceeding the demand (people wanting to buy houses), indicating a surplus.

Key concepts

Shortage

A shortage occurs when the demand for a product or service exceeds its supply. In simpler terms, more people want something than is available. This often leads to consumers being unable to purchase the product or access the service they desire at the current price.
For example, imagine a baseball game where all tickets were sold out the day before the event. Here, the demand for tickets is greater than the supply. People are turned away because there simply aren’t enough tickets for everyone who wants to attend. In such situations, shortages can drive prices higher because those willing to pay more might find individuals selling their tickets at higher rates.
Shortages can occur for several reasons, including:

• Sudden increase in consumer interest or popularity.
• Supply chain disruptions that make it difficult to produce or deliver enough of the item.
• Price ceilings, where regulations prevent prices from rising to a level that balances supply and demand.

Understanding shortages helps in planning and making decisions about pricing and inventory management.

Surplus

A surplus arises when the supply of a product or service exceeds demand for it. Simply put, more of the product is available than people want to buy, often leading to products sitting unsold.
This concept is illustrated in scenarios such as a college having more spaces available than the number of students who apply. Here, the institution has a surplus of spots because fewer students are interested than the spaces available. Similarly, if houses remain unsold on the market much longer than before, it suggests a surplus of houses relative to the number of interested buyers.
Factors contributing to surpluses include:

• Overproduction, where businesses make more products than needed.
• Decreased consumer interest, leading to fewer sales.
• High prices that deter potential buyers.

Recognizing a surplus can guide producers to adjust their output, potentially lowering prices to stimulate demand.

Supply and Demand

Supply and demand are fundamental economic concepts that help determine the market equilibrium, the point where quantity supplied equals quantity demanded.
The law of demand states that, all else being equal, as the price of a good or service decreases, consumer demand for it will increase, and vice versa. Conversely, the law of supply suggests that a higher price will encourage producers to supply more of that good, and vice versa.
Market equilibrium is achieved when:

• The amount of goods consumers are willing to buy equals the amount producers are willing to sell.
• There are no shortages or surpluses, resulting in a stable market environment.

The interplay of supply and demand determines prices in the marketplace. For instance, if more students had applied to college than spots available, it would result in a shortage, possibly increasing tuition or making admissions more competitive. Understanding these dynamics helps businesses, consumers, and policymakers anticipate changes and adapt to market conditions.