Suppose a shortage for good X exists. Given this information, we know that
A)the price of good X will tend to rise toward the equilibrium level.
B)the price of good X will tend to fall toward the equilibrium level.
C)a government price floor should be imposed above the current price so that the market can work more effectively.
D)a government price ceiling should be imposed above the current price so that the market can work more effectively.

Question

Quizplus · Accepted Answer

In a shortage, demand for the good exceeds supply, which puts upward pressure on the price. As a result, the price of good X will tend to rise toward the equilibrium level as market forces adjust to balance supply and demand. Choices C and D suggest government intervention, which is not necessarily the best solution in all cases. Choice B is incorrect because a shortage would not cause prices to fall; that would be more likely in a situation where supply exceeds demand (i.e., a surplus).

Suppose a Shortage for Good X Exists