Chapter 3: Theory of demand and supply

Question 1

Effect of shortages

Answer 1

• Queuing
• Panic buying and rationatining
• Formation of resale markets and black markets

Question 2

Effects of surplus

Answer 2

• wastage of resources
• rising cost for firms

Question 3

What are the causes of shortages?

Answer 3

• unanticipated rise in demand
• unanticipated fall in supply
• underestimation of demand by producers producing goods
• govt intervention such as price ceiling

Question 4

What are the causes of supluses?

Answer 4

• unanticipated rise in supply
• unanticipated fall in demand
• over estimation of demand by producers
• government intervention such as price floor