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9 June, 13:31

If consumers expect a shortage of consumer goods in the future, what will happen to output and price level?

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  1. 9 June, 16:27
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    The answer is decrease in output level and increase in price. Output decreases because consumers assume a shortage of goods, so they purchase more products. The producers on the other hand, also see the shortage in the future, so they decrease production now or build up stocks of goods to sell later (when there is a shortage) to make the most of their profits. Price increases since there is a shortage of goods, producers increase the price to maximize profits meaning people are willing to pay more, but will buy less just to satisfy their needs.
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