When there is a shortage of a good, consumers eventually give up trying to buy, so the demand for the good declines, and the price falls until the market is finally in equilibrium.

Question

Is this true or false? And why?

In: Economics

Answer 1

It may fall from the peak and land on a new equilibrium higher than old price but lower than peak.

Say a used car that would’ve sold for $8k last year is now selling for $10k due to shortage of used cars. Enough people decide to keep their car for now, maybe dealer eventually drops price to $9k before it sells.