REPRESENT USING DIAGRAMS.

1. A shortage arises when the quantity demanded exceeds the quantity supplied at a given price. In a diagram, it is represented by a situation where the demand curve is located above the supply curve. The range of prices where a shortage occurs is below the equilibrium price.

2. When a shortage occurs, the price tends to increase. As the quantity demanded exceeds the quantity supplied, consumers compete for the limited available supply, driving up the price. The increase in price incentivizes suppliers to increase their production and decrease demand, ultimately reducing the shortage.

3. A surplus arises when the quantity supplied exceeds the quantity demanded at a given price. In a diagram, it is represented by a situation where the supply curve is located above the demand curve. The range of prices where a surplus occurs is above the equilibrium price.

4. When there is a surplus, the price tends to decrease. As the quantity supplied exceeds the quantity demanded, suppliers have excess inventory that they want to sell. To clear the surplus, suppliers lower the price, which encourages more consumers to purchase the product and reduces the quantity supplied until the surplus is eliminated.

5. The equilibrium price is often referred to as the market-clearing price because it is the price at which the quantity demanded is equal to the quantity supplied. At this price, there is no shortage or surplus in the market. All buyers who are willing to pay that price can find sellers willing to sell at that price, and all sellers who are willing to sell at that price can find buyers willing to buy at that price. The market is in balance, and there is no pressure for the price to change because supply and demand are in equilibrium.