Price Adjustment Resolves Shortages

Steps:

• Define shortage: Occurs when quantity demanded (Qd) exceeds quantity supplied (Qs) at the current price.
• Apply law of demand: Higher price reduces Qd, shrinking the excess demand.
• Apply law of supply: Higher price increases Qs, expanding output to meet demand.
• Achieve equilibrium: Price rises until Qd equals Qs, eliminating the shortage.

Why B is correct:

• The laws of supply and demand dictate that rising price decreases Qd and increases Qs, directly balancing the market.

Why the others are wrong:

• A. Increasing quantity demanded widens the Qd-Qs gap, worsening the shortage.
• C. Quantity supplied responds to price changes; increasing it independently isn't a direct variable adjustment.
• D. More firms shift the supply curve rightward but don't immediately resolve the shortage without price effects.

Final answer: B