What outcome results if the demand for a commodity exceeds its supply?

What outcome results if the demand for a commodity exceeds its supply?

• A. Price drops
• B. Price stabilizes
• C. Price increases
• D. No change in price

Answer: (C)

When the demand for a commodity exceeds its supply, this creates a situation known as excess demand or a shortage. In economic terms, this imbalance tends to drive the price of the commodity upward. When consumers are willing to buy more of a product than what is available in the market, competition among buyers increases, leading them to offer higher prices to secure the limited quantity available. As sellers recognize this heightened demand, they are incentivized to increase prices further, reflecting the higher willingness of consumers to pay. In contrast, scenarios where demand equals supply generally lead to price stabilization, while an oversupply without sufficient demand would cause prices to drop. Therefore, the correct outcome when demand outstrips supply is indeed an increase in price.

When the demand for a commodity exceeds its supply, this creates a situation known as excess demand or a shortage. In economic terms, this imbalance tends to drive the price of the commodity upward. When consumers are willing to buy more of a product than what is available in the market, competition among buyers increases, leading them to offer higher prices to secure the limited quantity available. As sellers recognize this heightened demand, they are incentivized to increase prices further, reflecting the higher willingness of consumers to pay.

In contrast, scenarios where demand equals supply generally lead to price stabilization, while an oversupply without sufficient demand would cause prices to drop. Therefore, the correct outcome when demand outstrips supply is indeed an increase in price.