Shortage occurs when quantity demanded exceeds quantity supplied at a given price; what is the effect on price?

Shortage occurs when quantity demanded exceeds quantity supplied at a given price; what is the effect on price?

• A. Downward pressure on price
• B. No change in price
• C. Upward pressure on price
• D. It depends on tastes

Answer: (C)

When quantity demanded exceeds quantity supplied at the current price, a shortage exists. This signals that the price is too low to clear the market, so buyers bid up prices and sellers respond by raising the price or increasing supply. As the price rises, quantity demanded falls and quantity supplied rises until they match, eliminating the shortage. So the effect is upward pressure on price. The other options fit a different situation: a surplus would push price down; no change in price would require rigid prices or inelastic demand; and whether tastes change demand is about shifts, not the immediate price direction in a shortage.

When quantity demanded exceeds quantity supplied at the current price, a shortage exists. This signals that the price is too low to clear the market, so buyers bid up prices and sellers respond by raising the price or increasing supply. As the price rises, quantity demanded falls and quantity supplied rises until they match, eliminating the shortage. So the effect is upward pressure on price. The other options fit a different situation: a surplus would push price down; no change in price would require rigid prices or inelastic demand; and whether tastes change demand is about shifts, not the immediate price direction in a shortage.