Question

When a shortage exists in a market, sellers a. raise price, which increases quantity demanded and decreases quantity supplied, until the shortage is eliminated. b. raise price, which decreases quantity demanded and increases quantity supplied, until the shortage is eliminated. c. lower price, which increases quantity demanded and decreases quantity supplied, until the shortage is eliminated. d. lower price, which decreases quantity demanded and increases quantity supplied, until the shortage is eliminated.

Answer 1

Answer: Option (b) is correct.

Explanation:

When demand exceeds supply then there is a shortage of goods exists in a market. This shortage of goods work as an incentive for the sellers to charge higher prices in order to maximize their profits. So, these higher prices decreases the quantity demanded and increases the quantity supplied. When there is a shortage in an economy, the prices of the goods and services increases.