A large number of firms are capable of producing chocolate-covered cockroaches. The linear, upward-sloping supply curve starts on the price axis at $6 per box. A few hardy consumers are willing to buy this product (possibly to use as gag gifts). Their linear, downward-sloping demand curve hits the price axis at $4 per box. Draw the supply and demand curves. Does this market have an equilibrium at a positive price and quantity? Explain your answer.

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Market Surplus and Shortage Analysis

In everyday language, a “surplus” indicates that there is an excess of something, while a “shortage” means that there is a scarcity of it. In economics, “market surplus” refers to the condition where the quantity of a certain good more available than what is required or “demanded” by the market. In the same way, a “market shortage” refers to the condition where the quantity of a certain good is less available than what is “demanded” by the market. If quantity in demand is written as Qd and quantity that is supplied is written as Qs, then, the condition Qs > Qd indicates market surplus and condition Qd > Qs indicates market shortage.