In free and competitive markets, shortages are eliminated by
A) black markets.
B) rationing.
C) price decreases.
D) government price controls.
E) price increases.

Question

Quizplus · Accepted Answer

In a free and competitive market, shortages occur when the demand for a product or service exceeds its supply at the current price. In this situation, producers have an incentive to increase the price of the good or service to match the demand. As the price increases, the quantity supplied will increase and the quantity demanded will decrease, eventually leading to the elimination of the shortage. Therefore, the correct answer is price increases (choice E).

In Free and Competitive Markets, Shortages Are Eliminated by