Define the five systems. Be sure to include enough information to distinguish each system from the others
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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.
