Question

based on the laws of supply and demand, which situation would lead to a shortage?
a consumers are unwilling to pay for the product
b businesses are unwilling to reduce the inventory
c the price of a product falls below the equilibrium price
d the price of a product rises above the equilibrium price
e government sets a price floor

Explanation:

To determine which situation leads to a shortage, we analyze supply - demand theory:

• Option A: Consumers being willing to pay for a product is a general statement and doesn't directly cause a shortage. There's no information about supply or price here.
• Option B: Businesses being unwilling to reduce inventory doesn't relate to the price - quantity dynamics that create a shortage. Inventory decisions alone don't determine shortage.
• Option C: When the price of a product falls below the equilibrium price, the quantity demanded (\(Q_d\)) exceeds the quantity supplied (\(Q_s\)) (\(Q_d>Q_s\)). This is the definition of a shortage. At a price below equilibrium, consumers want to buy more (due to the lower price, by the law of demand), and producers want to supply less (by the law of supply), leading to a shortage.
• Option D: If the price is above the equilibrium price, the quantity supplied exceeds the quantity demanded (\(Q_s > Q_d\)), which leads to a surplus, not a shortage.
• Option E: A price floor is a minimum price set by the government, usually above the equilibrium price. This leads to a surplus (since \(Q_s>Q_d\) at a price above equilibrium), not a shortage.

Answer:

C. The price of a product falls below the equilibrium price.