Economics – The allocation of resources - Price determination | e-Consult

When demand exceeds supply, a shortage occurs. This means that consumers want to buy more smartphones than are available. The shortage creates upward pressure on the price. Consumers are willing to pay more to obtain a scarce good. As the price rises, the quantity demanded will decrease and the quantity supplied will increase, moving the market towards a new equilibrium. The new equilibrium price will be higher than the original equilibrium price, and the new equilibrium quantity will be lower than the original equilibrium quantity.

Diagram:

A standard supply and demand diagram should be included here. The diagram should show the original equilibrium point (E1) where the supply and demand curves intersect. An arrow should point upwards to a new equilibrium point (E2) at a higher price and lower quantity. Label the axes clearly (Price on the Y-axis, Quantity on the X-axis). Label the curves as 'D' (Demand) and 'S' (Supply). Indicate the original equilibrium as E1 and the new equilibrium as E2. Clearly label the higher price and lower quantity at E2.

In summary: A shortage leads to an increase in both the equilibrium price and a decrease in the equilibrium quantity.