Assume there is a shortage in the market for smartphones. Which of the following statements correctly describes this situation? Select one:
a. The demand for smart phones is less than the supply of smartphones.
b. Some consumers will be unable to obtain smartphones at the market price and will have an incentive to offer to buy the product at a higher price.
c. Any buyer who is willing and able to pay the price will find a seller for smartphones.
d. The shortage will cause a decrease in the equilibrium price of smartphones.
e. The price of smartphones will rise in response to the shortage; as the price rises the quantity demanded will increase and the quantity supplied will decrease.
The correct answer and explanation is:
Correct Answer: b. Some consumers will be unable to obtain smartphones at the market price and will have an incentive to offer to buy the product at a higher price.
A shortage in the market occurs when the quantity demanded exceeds the quantity supplied at the current price. This imbalance means there are more buyers than there are products available. As a result, not every consumer who wants to purchase the product at the current market price will be able to do so. This unmet demand creates pressure on the price to rise.
When a shortage exists, consumers often compete for the limited supply. Some may be willing to pay more than the existing price to secure the product. This behavior reflects the concept that the current price is below the market equilibrium. The market equilibrium is the price at which quantity demanded equals quantity supplied. When the market price is below this level, demand outpaces supply, leading to a shortage.
Option (a) is incorrect because it reverses the situation. In a shortage, demand is greater than supply, not the other way around.
Option (c) is incorrect because not all buyers will be able to find sellers at the current price due to the excess demand.
Option (d) is incorrect because a shortage typically causes the price to rise, not fall.
Option (e) is incorrect because while the price will rise, this will cause the quantity demanded to decrease and the quantity supplied to increase. The statement falsely claims that demand increases and supply decreases as price rises, which contradicts the law of demand and supply.
In conclusion, the correct description of a market shortage is that it leads to unmet demand at the current price, creating an incentive for buyers to pay more, as reflected in option (b).