Picture a competitive market with the usual upsloping supply curve and downsloping demand curve. If the current price is creating a shortage, then market forces will cause the price to adjust and:

Question

Quizplus · Accepted Answer

When the current price is creating a shortage, the quantity demanded exceeds the quantity supplied. As a result, sellers have an incentive to increase their output to take advantage of the excess demand and the shortage. This will put upward pressure on the market price, causing it to rise. As the price increases, the quantity supplied by firms will increase, which will help to alleviate the shortage and bring the market to equilibrium. Therefore, the correct choice is (A) Quantity supplied will increase.

Picture a Competitive Market with the Usual Upsloping Supply Curve