ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A shortage is a situation in which demand for a product or service exceeds the available supply. When this occurs, the market is said to be in a state of disequilibrium.

Detailed explanation-2: -Economists call this an “excess demand” – the quantity demanded is greater than the quantity supplied at the given price. This is also called a shortage.

Detailed explanation-3: -If demand exceeds supply, prices will rise. The law of supply and demand is based on two other economic laws: the law of supply and the law of demand. The law of supply says that when prices rise, companies see more profit potential and increase the supply of goods and services.

Detailed explanation-4: -A Market Shortage occurs when there is excess demand-that is quantity demanded is greater than quantity supplied. In this situation, consumers won’t be able to buy as much of a good as they would like.

Detailed explanation-5: -Therefore, shortage drives price up. If a surplus exist, price must fall in order to entice additional quantity demanded and reduce quantity supplied until the surplus is eliminated. If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated.