Question

PLEASE ANSWER ASAP!!!!! Suppose a good or service is highly desired, but the quantity supplied is limited. How does the competition among consumers affect profits for the selling firms?
A.
Firms are granted tax reductions if they are producing what consumers demand.
B.
Consumers bid up the price, which gives larger profits to the suppliers.
C.
The opportunity cost of goods sold expands profitability.
D.
Competing consumers will form cooperative purchasing companies and pay extra.

Answer 1

The correct answer is B.

If the quantity demanded of a good is larger than the amount produced, a market disequilibrum situation is taking place. Markets tend to adjust in order to reach equilibrium again, which is the situation in which desires of consumers (demand) and willigness to produce of companies (supply) are equal.

In this situation of excess demand, prices will rise until every consumer who demands the product at the larger new price is able to purchase and consume it, and until the whole production is sold. Therefore, out of the consumers who previously consituted the excess demand, those who were willing to pay the lowest prices are discarded.