Suppose a shortage for good A exists. Given this information, we know that
A) the price of good A will tend to rise toward the equilibrium level.
B) the price of good A 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

According to the law of supply and demand, when there is a shortage of a good, the quantity demanded exceeds the quantity supplied at the current price. This leads to upward pressure on the price as buyers compete for the limited supply of the good. Therefore, the price of good A will tend to rise toward the equilibrium level where quantity supplied equals quantity demanded.

Suppose a Shortage for Good a Exists