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?

Answer 1

Answer:

• At equilibrium, the quantity of a commodity demanded is the same as the quantity of that commodity supplied. i.e. QD = QS. The price at which QD = QS is the equilibrium price.

• When there is a shortage, the quantity of goods demanded would be greater than quantity supplied, as the price falls below the equilibrium price. i.e. QD>QS

• When there is surplus, the quantity of goods demanded is less than the quantity supplied, as price increases above the equilibrium price. i.e. QD<QS.

For example, in the table showing the demand and supply schedule for T shirt at different prices (see file attached), the equilibrium price for a unit of T shirt is $3, at equilibrium, QD = QS (i.e. 30 = 30).

A shortage is recorded when the price of T shirt falls below equilibrium price of $3 as shortage of T shirt is recorded, i.e. @ $2, QD>QS (40>20). A shortage of 20 is recorded.

Surplus occurs as price increases above equilibrium price of which QD<QD, i.e. @ $4, a surplus of 20 is recorded.