Thus, secondary effects are often important. With the passage of time, the market adjustments of both producers and consumers will be more complete. A. A price ceiling that establishes a price below the equilibrium level will cause shortages. When price is fixed below market equilibrium, nonprice factors become more important in the rationing process. C. A shortage is not the same as scarcity.
Scarcity is unavoidable and exists when more of a good is desired than is provided by nature.
Shortages are avoidable if prices are allowed to rise. Rising prices eliminate the shortage by discouraging consumption and encouraging production. D. A price floor that establishes price above the equilibrium level will cause a surplus. With price floors, nonprice factors will play a more important role in the rationing process. The surplus can be eliminated by allowing price to fall, which will encourage consumption and discourage production.