What generally occurs in a market when there is a shortage of a good?

A shortage in a market occurs when the quantity demanded of a good exceeds the quantity supplied at a given price. In response to this imbalance, buyers compete for the limited available units, leading to upward pressure on prices. When prices increase, this serves as a signal to suppliers that there is higher demand for the good, which can eventually incentivize them to increase production to meet that demand. Thus, it is expected that the price will likely increase due to excess demand, making this the correct interpretation of market dynamics in the event of a shortage.

Other options do not accurately reflect typical market behavior in the presence of a shortage. For instance, supply does not always adjust automatically to meet demand; it may take time for suppliers to respond to higher prices with increased production. Similarly, the equilibrium quantity does not increase immediately in a shortage situation; changes in equilibrium typically require time for adjustments in supply and demand. Lastly, prices falling sharply contradicts the logic of a shortage, as excess demand leads to price increases rather than declines.