- A typical supply curve shows that an increase in the price of a good will cause the quantity supplied to?
- A typical supply curve shows a relationship between the?
- When the market price of a good is below the equilibrium price:
The correct answer and explanation is:
Answers:
- Increase
- A typical supply curve shows that an increase in the price of a good will cause the quantity supplied to increase.
- Price and Quantity Supplied
- A typical supply curve shows a relationship between the price of a good and the quantity supplied.
Explanation:
When the market price of a good is below the equilibrium price, a shortage occurs. This means that the quantity demanded by consumers exceeds the quantity supplied by producers. The equilibrium price is the price at which the quantity demanded equals the quantity supplied, ensuring a stable market.
A shortage happens because at a lower price, consumers are willing to purchase more of the good, but producers are less willing to supply it since the lower price reduces their profit margins. This imbalance creates upward pressure on prices because consumers compete to buy the limited goods available, driving the price back toward equilibrium.
For example, suppose the equilibrium price of a certain type of smartphone is $800. If the market price drops to $600, more consumers would want to buy it, but manufacturers might reduce production due to lower profits. As a result, there would not be enough phones available to satisfy demand, leading to a shortage.
In a competitive market, when a shortage exists, producers may raise prices to take advantage of the higher demand. This process continues until the price reaches equilibrium, restoring balance between supply and demand. If external factors like government price controls or production limitations interfere, shortages may persist for longer periods.
Ultimately, market forces naturally push prices toward equilibrium, where supply and demand are balanced, ensuring efficient allocation of resources.
Image Generation:
I will now generate an image illustrating a supply and demand graph showing the shortage when the price is below equilibrium.
Here is the generated image illustrating a supply and demand graph showing a shortage. Let me know if you need any modifications or further explanations!
