Macroeconomics Assignment 1: Market Equilibrium Analysis

This macroeconomics assignment delves into the core concepts of equilibrium, surplus, and shortage within a market economy. It defines each term, outlining the relationships between quantity demanded (Qd), quantity supplied (Qs), and the supply and demand curves in each scenario. The assignment explores the factors that cause these market conditions, including changing societal trends and market forces. It then investigates the causes of shortages and surpluses in a free market, providing real-world examples of each. Furthermore, the assignment analyzes the inefficiencies associated with both surpluses and shortages, explaining how these conditions impact resource allocation and market effectiveness. Finally, it addresses how markets return to equilibrium in both surplus and shortage situations, explaining the mechanisms involved in restoring balance between supply and demand.

Running Head: Macroeconomics
Macroeconomics
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Macroeconomics 1
Assignment 1:
1A
Equilibrium: It refers to a situation in where supply and demand are balanced which means the
demand and supply of one product are identical. Qd and Qs have direct relationship in state of
equilibrium. Supply and demand curve also have a direct relationship with each other in case of
equilibrium.
Surplus: economic surplus refers to sum of producer surplus and consumer surplus. It is the
benefit that producer and consumer earn when they sell or purchase the products. Qs is always
greater than Qd in case of surplus position (Qs > Qd). Supply curve grows with a slight
increment in demand curve.
Shortage: it event occurs when the quantity demanded for product exceeds the quantity supplied.
Qd in given case is more than the Qs in market (Csaba, 2017).

Macroeconomics 2
1B
These relationships exist in the environment because of the changing trends in the society. With
the changing market forces and quantity demanded changes the state of equilibrium, surplus or
shortage for a product.
Assignment 2:
Below mentioned are the three reasons that cause shortage of a product in society:
 Increment in demand
 Downfall in supply of products
 Governmental interventions
Two real world examples are:
 Poor weather conditions rotting agricultural products like potato
 Lack of housing spaces for people in various locations (Nuti, 2018)
Assignment 3:
Below mentioned are the three reasons that cause surplus of a product in society:
 Excessive Costing

Macroeconomics 3
 Over production of goods
 High Competition
Two real world examples are:
 Several coffee shops present in localities selling products at almost similar rate
 Reduction in flight charges
Assignment 4:
Surplus is a type of inefficiency because it generally increases the production of the goods.
Several scarce resources are used to make products more than actually demanded. Shortage is
inefficient because less quantity of products is produced in the market. In this case, the demand
of society is not met completely (Mihalyi, 2017). In both the events, either the organization is
supply more than required or not supplying at all due to which effectiveness of the products
starts to reduce. Resulting in which, both the positions are not profitable for the organization as
in shortage they are losing opportunity to earn and in surplus, the business is wasting the
resources.
Assignment 5:
5A: we need to return to the state of equilibrium because it is the state when the demand is
satisfied in the environment. In this position, the company supplies the products as per the need
of the customers. This position will secure the organization from wasting their resources and
producing products according to demand present in market. Thus, the value of products rises due
to its adequate availability in the market (Foster, Deck, & Farmer, 2019).
5B: In case of shortage, it is important to return to equilibrium because it will help the
organization to satisfy the demand present in the market by providing products to the customers
based on the demand. The company could reach to equilibrium by exceeding the production
process and analysing the available demand in an appropriate manner.

Macroeconomics 4
References
Csaba, L. (2017). Comparative economics and the mainstream. Economics and Business
Review, 3(3), 32-51.
Foster, J., Deck, C., & Farmer, A. (2019). Behavioral demand effects when buyers anticipate
inventory shortages. European Journal of operational research, 276(1), 217-234.
Mihalyi, P. (2017). Kaldor and Kornai on economics without equilibrium–two life courses. Acta
Oeconomica, 67(s1), 47-66.
Nuti, D. M. (2018). Kornai: Shortage versus surplus economies. Acta Oeconomica, 68(s1), 85-
98.