Question

If the supply of turkeys in a particular November (remember Thanksgiving) turned out to be unusually small (few turkeys), do you think a turkey shortage would result? Explain your answer and be prepared to graph. What causes a shortage in the world at anytime? Mispricing; please explain.

Answer 1

The supply and the demand function together determine the price and quantity in the market for a particular good. In case the supply of a particular good turns out to be unusually small, as in the current case, turkey, the supply curve would be shifting to the left, and creating a shortage at the existing price level.

However, this shortage is only temporary because competition among the buyers will push the price up and as price increases, some of the buyers will leave the market while some of the sellers will start selling more. This results in increasing the quantity supplied and decreasing the quantity demanded so that at a new equilibrium is determined. Comparing with the original equilibrium, the quantity has reduced and the price Is increased but there is no shortage.

If there are shortages in the the market for a particular product, and these are not temporary, there needs to be a significant reason for it such a legal price ceiling set by the government. Without any legal restriction, the market will automatically reach to a new equilibrium in case there is an existing shortage.