What happens when demand for a good exceeds its supply?

What happens when demand for a good exceeds its supply?

• A. Prices tend to decrease as more products are made available
• B. Prices tend to remain stable regardless of demand
• C. Prices tend to increase as consumers compete for limited goods
• D. Prices decrease as producers lower them to attract buyers

Answer: (C)

When demand for a good exceeds its supply, prices tend to increase as consumers compete for limited goods. This phenomenon occurs because a higher demand for a product means that more consumers want to purchase it than what is currently available. As consumers compete to secure the limited supply, they may be willing to pay more, driving up the price of the good. This price increase serves as a signal to producers, indicating that there is a higher demand for that product. In response, producers may increase production to meet the demand or introduce substitute goods. This dynamic is a fundamental aspect of how markets operate, illustrating the relationship between supply and demand.

When demand for a good exceeds its supply, prices tend to increase as consumers compete for limited goods. This phenomenon occurs because a higher demand for a product means that more consumers want to purchase it than what is currently available. As consumers compete to secure the limited supply, they may be willing to pay more, driving up the price of the good.

This price increase serves as a signal to producers, indicating that there is a higher demand for that product. In response, producers may increase production to meet the demand or introduce substitute goods. This dynamic is a fundamental aspect of how markets operate, illustrating the relationship between supply and demand.