Review Figure 3.4. Suppose the price of gasoline is $1.60 per gallon. Is the quantity demanded higher or lowerthan at the equilibrium price of $1.40 per gallon? What about the quantity supplied? Is there a shortage or a surplusin the market? If so, how much? SExcess supplyor surplus$2.20$1.80An above-equilibrium priceEquilibrium priceA below-equilibrium price$1.40a $1.20$1.00Excess demandor shortageD$0.60300 400 500 600700800900Quantity of Gasoline (millions of gallons)P ($ per gallon)

When there is an excess supply—that is, when the quantity supplied exceeds the quantity…

S Excess supply or surplus $2.20 $1.80 An above-equilibrium price Equilibrium price A below-equilibrium price $1.40 a $1.20 $1.00 Excess demand or shortage D $0.60 300 400 500 600 700 800 900 Quantity of Gasoline (millions of gallons) P ($ per gallon)

S Excess supply or surplus $2.20 $1.80 An above-equilibrium price Equilibrium price A below-equilibrium price $1.40 a $1.20 $1.00 Excess demand or shortage D $0.60 300 400 500 600 700 800 900 Quantity of Gasoline (millions of gallons) P ($ per gallon)

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 2.5P: (Determinants of Price Elasticity) Would the price elasticity of demand for electricity be more...

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Question

Review Figure 3.4. Suppose the price of gasoline is $1.60 per gallon. Is the quantity demanded higher or lower
than at the equilibrium price of $1.40 per gallon? What about the quantity supplied? Is there a shortage or a surplus
in the market? If so, how much?

S
Excess supply
or surplus
$2.20
$1.80
An above-equilibrium price
Equilibrium price
A below-equilibrium price
$1.40
a $1.20
$1.00
Excess demand
or shortage
D
$0.60
300 400 500 600
700
800
900
Quantity of Gasoline (millions of gallons)
P ($ per gallon)

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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