Question

Suppose there is a shortage in the market for avocados. Assuming a competitive and unrestrained market, what happens over time?

MCQ Options:
a. The price of avocados increases, and the quantity supplied decreases.
b. The price of avocados decreases, and the quantity supplied increases.
c. The price of avocados increases, and the quantity demanded decreases.
d. The price of avocados decreases, and the quantity demanded increases.

Answer 1

a. The price of avocados increases, and the quantity supplied decreases.

In a competitive market with a shortage of avocados, the price would increase, thus causing the quantity demanded to decrease, in accordance with the law of demand.

Step-by-step explanation:

Suppose there is a shortage in the market for avocados. Assuming a competitive and unrestrained market, the correct response is that the price of avocados increases, and the quantity demanded decreases. This is because in a competitive market, a shortage causes an increase in price due to high demand and insufficient supply. As the price goes up, the quantity of avocados that consumers are willing and able to purchase at the higher price will decrease, which is in accordance with the law of demand. Conversely, the higher price provides an incentive for producers to supply more avocados, eventually leading to an increase in quantity supplied. However, the original question only asks about the immediate effect of the shortage which is an increase in price and a decrease in demand.