Question

which of the following statements regarding shortages is true?

a. shortages can lead to higher prices.

b. shortages often lead to sellers to reduce the price of a good or service.

c. shortages often lead sellers to clear out excess inventory.

d. shortages do not occur after a price decrease.

e. shortages do not happen in communist countries.

Explanation:

To determine the correct statement about shortages, we analyze each option:

• Option A: In a market with a shortage (demand > supply), sellers can raise prices as consumers compete for limited goods, so this is correct.
• Option B: Shortages mean demand exceeds supply; sellers would increase, not reduce, prices, so this is incorrect.
• Option C: Shortages imply low inventory, not excess; excess inventory is a surplus, so this is incorrect.
• Option D: A price decrease can lead to higher demand, potentially causing a shortage (e.g., if supply doesn't adjust), so this is incorrect.
• Option E: Shortages can occur in any economic system, including communist countries, so this is incorrect.

Answer:

A. Shortages can lead to higher prices.