Question

In competitive markets, a surplus or shortage will
A. cause shifts in the demand and supply curves that tend to eliminate the surplus or shortage.
B. cause changes in the quantities demanded and supplied that tend to eliminate the surplus or shortage.
C. never exist because the markets are always at equilibrium.
D. cause changes in the quantities demanded and supplied that tend to intensify the surplus or shortage.

Answer 1

Answer:

B. cause changes in the quantities demanded and supplied that tend to eliminate the surplus or shortage.

Explanation:

In a competitive economy, the balance between supply and goods and services occurs when demand and supply match. However, situations of oversupply or scarcity tend to alter the parameters of the demand and supply curves. If shortages occur, the price tends to rise, which generates an incentive for production. If oversupply occurs, the price tends to decrease, which is an incentive to increase demand. Thus, in the long run the economy tends to a new equilibrium, which will eliminate surplus / scarcity.