Question

When there is a shortage in the market for a resource, like labor, or for a consumer good, the shortage is eliminated (“the market is cleared”) when the market price rises to its new equilibrium level. But it can take longer for some markets to clear than others. Suggest one market for which you would expect the market to clear relatively quickly. Briefly explain why the market would clear quickly.

Answer 1

When there is a shortage it means that demand is higher than supply , so the price eventually rises until it reaches equilibrium and the market clears . This process takes longer in some markets than others . A market which will clear relatively quickly can be called an efficient market which probably sells homogeneous goods and has perfect information to both buyer and seller . As for example the stock market .

In the stock market a company's stock is listed and investors buy the stocks depending on stock price . Every stock is homogeneous . The stocks of different companies are just units which have different prices . In this market suppose there is huge demand for shares of company X . There is perfect information to buyers and sellers regarding price and quantity demanded and supplied . So company X can easily see that people are quoting more price or demanding more of their shares and hence can release more units in the market immediately which helps to clear the market .