ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A shortage exists if the quantity of a good or service demanded exceeds the quantity supplied at the current price; it causes upward pressure on price. An increase in demand, all other things unchanged, will cause the equilibrium price to rise; quantity supplied will increase.

Detailed explanation-2: -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.

Detailed explanation-3: -Inflation is a general rise in the price of goods in an economy. Demand-pull inflation causes upward pressure on prices due to shortages in supply, a condition that economists describe as “too many dollars chasing too few goods.” An increase in aggregate demand can also lead to this type of inflation.

Detailed explanation-4: -If there is a shortage, the high level of demand will enable sellers to charge more for the good in question, so prices will rise. The higher prices will then motivate sellers to supply more of that good. At the same time, the rising prices will make demand go down.

Detailed explanation-5: -Excess Demand When price is below equilibrium and the product sells out quickly, competition among consumers, along with recognition by producers that they could raise price and still sell all units, leads to upward pressure on prices.