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How do market economies deal with shortages?

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If a good is in short supply, then the price rises, those already trading in that good see a rise in their profits.

But so do other people, who then start to supply the good, and because they are new to the market they sell cheaper to get a foothold, also because there is suddenly an increase in the supply the prices goes down as people shop around for the cheapest prices.

John Ashtone

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