Suppose the market for ice cream is deregulated. That is, ice cream are free to adjust based on the forces of demand and supply. If a shortage exists in the ice cream market, then the current price must be _______ than the equilibrium price, and you would expect __________.
My Answer:
First blank - lower
Second blank - buyers to offer high prices
Correct me if I'm wrong, please.
http://www.answers.com/topic/supply-and-demand
Read that first sentence VERY CAREFULLY! Let us know what you think.
Your answer is incorrect.
If a shortage exists in the ice cream market, then the current price must be higher than the equilibrium price, not lower.
Here's the correct explanation for both blanks:
1. The current price must be higher than the equilibrium price. In a market where supply and demand are free to adjust, the equilibrium price is the price at which the quantity demanded equals the quantity supplied. However, if the market price is lower than the equilibrium price, it would result in excess demand, or a shortage. Therefore, the price needs to increase to reach the equilibrium level and eliminate the shortage.
2. You would expect sellers to increase the price in response to the shortage. When a shortage exists, there are more buyers willing to purchase the product at the current price than there are sellers willing to supply. This creates competition among buyers, as they try to outbid each other to secure the limited supply of ice cream available. Consequently, sellers can take advantage of this situation and raise their prices as buyers are willing to offer higher prices to obtain the scarce ice cream.
To summarize, in a deregulated ice cream market with a shortage, the current price will be higher than the equilibrium price, and you would expect sellers to raise prices as buyers offer higher prices to acquire the limited supply.