If a shortage exists in a market, we know that the actual price is:

• A. above the equilibrium price
• B. equal to the equilibrium price
• C. below the equilibrium price
• D. unrelated to the equilibrium price

Answer: (C)

Verified step by step guidance

1. Recall the definition of a shortage in a market: it occurs when the quantity demanded exceeds the quantity supplied at a given price.
2. Understand that the equilibrium price is the price at which quantity demanded equals quantity supplied, so there is no shortage or surplus at this price.
3. If a shortage exists, it means the current price is not high enough to balance supply and demand, so the quantity demanded is greater than the quantity supplied.
4. Therefore, the actual price causing the shortage must be below the equilibrium price, because raising the price would reduce demand and increase supply, eliminating the shortage.
5. Conclude that when a shortage exists, the actual market price is below the equilibrium price.