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At a price below the equilibrium level in a competitive market, quantity demanded exceeds quantity supplied. What term describes this gap, and what pressure does it put on price?
AA surplus, which pushes price downward toward equilibrium
BA shortage, which pushes price further below equilibrium
CA shortage, which pushes price upward toward equilibrium
DA surplus, which has no effect on price at all
Answer & Solution
Correct answer: C. A shortage, which pushes price upward toward equilibrium
1. Below equilibrium, buyers want to buy more than sellers want to sell at that price.
2. This gap is called excess demand, or a shortage.
3. Eager buyers mob sellers who are running short of stock.
4. Sellers recognize they can raise price and still sell everything they have, so price is pulled back up toward equilibrium.
5. Option B is wrong because a shortage creates pressure to raise price, not lower it further.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 3 "Demand and Supply", section 3.1 | Demand, Supply, and Equilibrium in Markets for Goods and Services_
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