A - sales. A higher price will simultaneously increase the...

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(A) Shortage is a situation in which the quantity supplied is greater than the quantity demanded. If the price of players 150$, the quantity supplied is 35 million, and the quantity demanded is 45 million. In this case, the shortage is equal to 10 million digital music players (45 million – 35 million = 10 million) (B) Surplus is a situation in which the quantity supplied is greater than the quantity demanded. If the price of players is 300$, quantity supplied is 50 million, and the quantity demanded is 30 million. In this case, the surplus is equal to 20 (50 million – 30 million = 20 million) (C) Description the process that would bring the market for players to the equilibrium: For the shortage in (A) When a shortage occurs, some consumers will be unable to buy a digital music player at the current price. In this situation, firms will realize that they can raise the price without loosing
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Unformatted text preview: sales. A higher price will simultaneously increase the quantity supplied and decrease the quantity demanded. This adjustment will reduce the shortage, but as long as the price is below 200$, there will be a shortage. Only when price has risen to 200$ will the market be in the equilibrium. For the surplus in (B) When there is a surplus, firms have unsold goods piling up, which gives them an incentive to increase their sales by cutting the price. Cutting the price will simultaneously increase the quantity demanded and decrease the quantity supplied. This adjustment will reduce the surplus, but as long as the price is above 200$, there will be a surplus, and downward pressure on the price will continue. Only when the price has fallen to 200$ will the market be in the equilibrium....
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This note was uploaded on 10/19/2008 for the course ECON 201 taught by Professor Shea during the Fall '08 term at Maryland.

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