When we look at the demand for corn there has been a recent shortage. How does the pricing change when a good or service is in shortage or surplus? Give a detail example of where you have seen this in the market.
When there is a shortage, regardless of the shift in the demand curve, the price will always be below the price equilibrium. For example, if we look at the price of apples at $1.50, if the supply curve shifts right, demand will increase but price will drop to $1.00. If there is a recall on apples because of poor quality or it has been found to be severely genetically modified, the price will also decrease to $1.00 and cause consumers to stop purchasing apples, leading to another shortage. A surplus occurs when there is an increase in price above the equilibrium price, regardless of the demand. For example, if the demand curve shifts left, price increases but quantity demanded will decrease because less consumers are buying when prices are high. This is true primarily for gas and fuel. A surplus also occurs when a firm adds technology to enhance operations, increasing the supply of workers and work and the demand of that work being done by workers. An example of this is when Apple Inc. or Google Inc. build more offices and use Apple desktops in their offices, and also add more jobs in customer service, engineering, research and development, etc.
Oct 24th, 2014
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