The price of a good increases when it becomes relatively more scarce

Economics Dec 08, 2020

The price of a good increases when it becomes relatively more scarce.

(a) true

(b) false

Expert Solution

This statement is true.

The price of a good is determined by the supply and demand of that good. Assuming that the demand for the good is fixed, the main diver is the supply. When the supply of a specific good decreases (because it becomes more scarce) the supply curve shifts to the left. This supply curve shift leads to an increase in prices. Therefore, when there is less supply of a good, the price tends to increase.

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