-When a Shortage Exists in a Market

question 190

Multiple Choice

-When a shortage exists in a market

• A) the market clearing price is above equilibrium and market forces will cause the price to fall.
• B) the quantity demanded is less than the quantity supplied at the existing price.
• C) the current price is below the market clearing price and the price will rise.
• D) the quantity supplied is greater than the quantity demanded at the current price.

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Definitions:

Negative Externality

A cost suffered by a third party due to an economic transaction, without compensation.

After-Tax Equilibrium

The balance reached in the market after accounting for the effects of taxes.

Socially Optimal Quantity

The level of output or production that maximizes societal welfare, taking into account all external costs and benefits.

Equilibrium Price

The price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers, resulting in a stable market condition.