Which of the following correctly describes how price adjustments eliminate a shortage?

A. As the price falls, the quantity demanded increases while the quantity supplied decreases.
B. As the price rises, the quantity demanded decreases while the quantity supplied increases.
C. As the price falls, the quantity demanded decreases while the quantity supplied increases.
D. As the price rises, the quantity demanded increases while the quantity supplied decreases.

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eooyibo123 eooyibo123 · Answer 1 · 2020-02-11T06:47:50+01:00

Answer:

As the price rises, the quantity demanded decreases and the quantity supplied increases.

Explanation:

When a shortage occurs, demand for a product is high and is not being matched by supply (supply is low).

So to bring demand down and increase supply, we need to increase the price.

According to the law of demand and increase in price results in a decrease in demand.

The law of supply states that when price increases there will be an increase in supply, making more goods available and eliminating shortage.

This is illustrated in the attached diagram.