Lesson: Shortage/Surplus and Price Floors/Ceilings

Lesson:  Shortages/Surplus and Price Floors/Ceilings - Shortages forces prices to increase.  The rising prices reduces the shortage because it decreases the quantity demanded and increases the quantity supplied.  When prices settle at a certain point
where there is no more shortage and the price gravitates to rest at an equilibrium.
Suppose the price of a CD is $1.  Buyers plan to purchase 6 million discs and producers plan to sell 3 million discs in that same time period.  But the forces of shortages increases the prices and force the price to the Point of Equilibrium.  Consequently, when sellers notice long lines of dissatisfied consumers, they raise the prices toward equilibrium.
It is the rising prices that reduces the shortage because it decreases the qunatity demanded
and increases the quantity supplied.
      Surplus - Surpluses force the prices down.  Example, the price of a CD is $2
and producers (sellers) plan to sell 5 million discs per week and consumers want to only
buy 3 million per week.  Since producers cannot force consumers to buy more than they want to, the consumers only actually buy 3 million discs for the week.  The forces of surplus lower the price and move it toward the Point-of-Equilibrium.  Because the producers are unable to sell the quantities of CDs that they had planned to, they cut their prices.  Eventually, producers reduce their manufacture less and, as producers cut back on their production, the prices falls toward the Point-of-Equilibrium.  The falling price
decrease the surplus because people want to buy more at lower prices.  There would no longer be any surpluses, moving the price to equilibrium.

Price ceilings and Price floors - Sometimes the government enacts price ceilings and thereby creates shortages.  The government sometimes sets minimum legal prices enacting a price floor.  In this case, the government prohibits a price from falling to its equilibrium price.  If, on the other hand, the government enacts a price ceiling, it keeps the price from rising to its equilibrium.  The result is a shortage because the low price makes the consumers want to buy more than producers want to sell. 

For your lesson, draw the following and label all titles, sub-titles, and sources of information.  Y-Axis (Price) intervals can be set at .50 and X-Axis (Quantity) is spaced
at 2 million at each interval. 
   

                    Quantity             Quantity           Shortage (-)
Price           demanded            supplied           or Surplus (+)

  .50                    9                         0                        -9
1.00                    6                         3                        -3
1.50                   4                          4                         0
2.00                   3                          5                       +2
2.50                   2                          6                       +4

Question to Answer:  Using the above information, describe or designate where the surplus and shortage areas by coloring or shading your answer.