Suppose in a given market the quantity demanded is greater than the quantity supplied. This tells us that:

a) there is a shortage and the price will fall.

b) there is a surplus and the price will rise.

c) there is a shortage and the price will rise.

d) there is a surplus and the price will fall.

• The answer is: c) there is a shortage and the price will rise.

Suppose in a given market the quantity demanded is greater than the quantity supplied. This tells us that there is a shortage and the price will rise. At first, an increase in quantity demanded will create a shortage in the market, driving price up. Suppliers will then recognize this shortage and expand their supplies to gain from the increased prices. This will finally lead to a new market equilibrium price and quantity.