What causes a shortage vs. a surplus in a market?

• A. Shortages and surpluses are caused only by changes in consumer tastes, not by prices or supply conditions.
• B. A shortage happens when demand shifts left and a surplus happens when supply shifts right.
• C. A shortage is caused by a price ceiling, and a surplus is caused by a price floor.
• D. A shortage occurs when quantity demanded exceeds quantity supplied at the current price; a surplus occurs when quantity supplied exceeds quantity demanded at the current price.

Answer: (D)

Verified step by step guidance

1. Understand the definitions: A shortage occurs when the quantity demanded is greater than the quantity supplied at the current price, while a surplus occurs when the quantity supplied is greater than the quantity demanded at the current price.
2. Recognize that shortages and surpluses are primarily caused by price levels relative to the market equilibrium, not solely by changes in consumer tastes or supply conditions.
3. Identify that a price ceiling set below the equilibrium price can cause a shortage because it limits how high prices can rise, increasing quantity demanded but reducing quantity supplied.
4. Identify that a price floor set above the equilibrium price can cause a surplus because it sets a minimum price that is higher than the equilibrium, increasing quantity supplied but reducing quantity demanded.
5. Summarize that shortages and surpluses result from imbalances between quantity demanded and quantity supplied at a given price, often influenced by government interventions like price ceilings and floors.