Question

1. In response to a shortage in a market, the price will rise until it equals the equilibrium price. The shortage is then eliminated. But there are numerous instances where it describes shortages at stores where prices rise, but long lines of consumers persist, and stores have sold out of some of these products. Explain why price increases haven’t eliminated the shortages.

2. Some retailers, including Target and Amazon, are limiting the purchases of some items they sell and “…penalizing online sellers for price gouging.” Why would retailers limit the quantity of an item that consumers are allowed to buy, rather than sell the items to consumers at higher prices they are willing to pay? In your answer explain what a market-clearing price is.

3. What is price gouging? Is it illegal for a company to sell a product for a high price that a consumer is willing to pay?

Note: Please cite references and provide any graphs/information as deemed necessary.

Answer 1

The solution of first problem would be.........