When the price of a product is set below the market price, a _ will occur.
The correct answer and explanation is:
When the price of a product is set below the market price, a shortage will occur.
A shortage happens when the quantity demanded exceeds the quantity supplied at a given price. If the price of a product is set below the market equilibrium price (the price at which the quantity demanded equals the quantity supplied), consumers are willing to buy more of the product at the lower price. However, producers are less willing to supply the product because the price they receive is lower than the equilibrium price, which may not cover their costs or provide sufficient profit. As a result, the quantity supplied decreases, and the quantity demanded increases, leading to a shortage.
In a market with a shortage, there are more buyers than there are goods available. Consumers may compete to purchase the product, leading to long lines or waiting times. This excess demand puts pressure on producers to either raise prices or increase supply. If the price is not adjusted, the shortage may persist, resulting in unsatisfied demand.
A shortage can also lead to black markets or illegal trading, where goods are sold at higher prices outside of the regular market channels. To correct the shortage, producers may decide to increase production or the price may rise to balance supply and demand. As the price increases, the quantity demanded will typically decrease, and the quantity supplied will increase, moving the market towards equilibrium.
In summary, setting the price below the market equilibrium price distorts the natural balance of supply and demand, leading to a shortage. This occurs because the lower price incentivizes consumers to buy more while discouraging producers from supplying enough to meet the increased demand.