In the following situation the market is initially in equili

In the following situation, the market is initially in equilibrium. After each event described below, does a surplus or a shortage exist at the original equilibrium price? What will happen to equilibrium price as a result? Draw your answer.

- After a hurricane, Florida hoteliers often find that many people cancel their upcoming vacations, leaving them with empty hotel rooms.

Solution

When many people cancel their vacations, demand for hotel will decrease greatly leading to surplus of hotel rooms. The demand curve shifts leftward and the equilibrium price will decrease.