Question

What is the relationship between quantity demanded and quantity supplied at equilibrium? What is the relationship when there is a shortage? What is the relationship when there is a surplus?

Short answer

At equilibrium, the quantity demanded (\( Q_D \)) equals the quantity supplied (\( Q_S \)), represented as \( Q_D = Q_S \). During a shortage, quantity demanded is greater than quantity supplied (\( Q_D > Q_S \)). Conversely, during a surplus, quantity demanded is less than quantity supplied (\( Q_D < Q_S \)).

Step-by-step solution

1. Concepts of Supply, Demand, and Market Equilibrium

To understand the relationship between quantity demanded and quantity supplied in different scenarios, we must first understand the basic concepts of supply, demand, and market equilibrium. Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at various prices. Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices. The supply and demand curves show the relationship between price and quantity supplied or demanded. Market equilibrium occurs when the quantity demanded equals the quantity supplied at a particular price. This price and quantity combination is referred to as the equilibrium price and equilibrium quantity.

2. Analyzing the Relationship at Equilibrium

At equilibrium, the quantity demanded is equal to the quantity supplied. This means that consumers are consuming the exact amount of the good or service that producers are supplying. We can represent this as: \( Q_D = Q_S \) Where: \( Q_D \) = quantity demanded \( Q_S \) = quantity supplied

3. Definition of Shortage and Surplus

A shortage occurs when the quantity demanded is greater than the quantity supplied at a specific price. This means that consumers want to purchase more of the good or service than what producers are willing and able to supply at that price. A surplus occurs when the quantity demanded is less than the quantity supplied at a specific price. This means that consumers want to purchase less of the good or service than what producers are willing and able to supply at that price.

4. Analyzing the Relationship During a Shortage

During a shortage, the quantity demanded is greater than the quantity supplied. This means that consumers are seeking to consume more of the good or service than producers are supplying. We can represent this as: \( Q_D > Q_S \) Where: \( Q_D \) = quantity demanded \( Q_S \) = quantity supplied

5. Analyzing the Relationship During a Surplus

During a surplus, the quantity demanded is less than the quantity supplied. This means that consumers are seeking to consume less of the good or service than producers are supplying. We can represent this as: \( Q_D < Q_S \) Where: \( Q_D \) = quantity demanded \( Q_S \) = quantity supplied To summarize, the relationship between quantity demanded and quantity supplied is as follows: 1. At equilibrium: \( Q_D = Q_S \) 2. During a shortage: \( Q_D > Q_S \) 3. During a surplus: \( Q_D < Q_S \)