HISET Social Studies Practice

What is a 'Shortage' in economic terms?

1. A situation in which quantity supplied is greater than quantity demanded

2. A balanced budget scenario

3. A situation in which quantity demanded is greater than quantity supplied

4. Excess inventory of products

The correct answer is: A situation in which quantity demanded is greater than quantity supplied

In economic terms, a 'shortage' occurs when the quantity demanded for a good or service exceeds the quantity supplied at a given price. This imbalance often leads to upward pressure on prices, as consumers are willing to pay more to obtain the limited goods available. A shortage reflects high consumer demand coupled with inadequate supply, which can happen due to various factors such as production disruptions, sudden increases in consumer interest, or new regulations affecting supply levels. The other options do not accurately describe a shortage. An instance where the quantity supplied is greater than the quantity demanded, for example, represents a surplus, which is the opposite of a shortage. A balanced budget scenario refers to government finance and does not relate to supply and demand dynamics. Lastly, excess inventory indicates an oversupply of products without sufficient demand, again contradicting the concept of a shortage. Understanding these distinctions is crucial in grasping basic economic concepts related to market dynamics.