Question

A market shortage occurs when:a. the quantity demanded is less than the quantity supplied at a given price. b. the market price is below equilibrium. c. sellers produce a lot of the product and consumers like it a lot. d. a new product is introduced at the equilibrium price.

Answer 1

Answer:

b. the market price is below equilibrium

Explanation:

Markets are at Equilibrium, where market demand = market supply. Market Demand is downward sloping due to price - demand inverse relationship as per law of demand. And, Market Supply is upward sloping due to price - supply direct relationship as per law of supply

When Price is below Equilibrium price : Market demand is more, as it is inversely related with price. And, Market supply is less, as it is directly related with price. So Market Supply is more than Market Supply. This implies Scarcity (Market Shortage), when supply is insufficient to fulfil demand.

This excess demand (or shortage/ scarcity) creates competition among buyers & pushes up the market price.This way; finally, the market price & market quantity resume back to equilibrium level.