In a market, what happens when demand exceeds supply?

• A. Prices fall
• B. No change
• C. Prices rise
• D. Supply instantly increases

Answer: (C)

When demand exceeds supply, a shortage occurs and the market price tends to rise. The higher price signals scarcity, causing buyers to scale back and sellers to supply more, moving the market toward balance. So the rise in price is the natural short-run adjustment that resolves the shortage.

Prices falling would happen if there were more supply than demand. No change would imply price rigidity, which isn’t the typical response to a shortage. An immediate, instant increase in supply isn’t realistic either, since producers need time to ramp up production or adjust capacity; price changes usually occur first to coordinate behavior.