Which outcome occurs when demand outpaces supply?

• A. Lower prices
• B. No change
• C. Quantity demanded increases
• D. Higher prices

Answer: (D)

When demand exceeds supply, a shortage exists and the market responds with higher prices. The scarcity of goods makes buyers compete more, and sellers can raise prices to balance the excess demand. As prices rise, fewer buyers want the good (quantity demanded falls) and more producers are willing to supply it (quantity supplied rises), moving toward a new equilibrium.

Lower prices wouldn’t resolve a shortage; they would worsen it. No change ignores the pressure of the shortage. Quantity demanded would increase only if price fell, which isn’t the response to a shortage.