Forest fires have inflicted significant damage to a region, leaving several paper mills destroyed in their wake. As such, the supply of paper in the region has been significantly reduced. Without government intervention, which of the following is likely to occur?(1 point)

Question

Responses

A shortage of paper will persist indefinitely unless government action is taken to increase paper production in the region.
A shortage of paper will persist indefinitely unless government action is taken to increase paper production in the region.

A temporary shortage of paper will be remedied as consumers bid up prices, and paper production increases due to the rising profits associated with higher prices.
A temporary shortage of paper will be remedied as consumers bid up prices, and paper production increases due to the rising profits associated with higher prices.

A temporary surplus of paper will be remedied as consumers bid down prices, and paper production decreases due to the loss of profits associated with falling prices.
A temporary surplus of paper will be remedied as consumers bid down prices, and paper production decreases due to the loss of profits associated with falling prices.

A surplus of paper will persist unless government action is taken to decrease paper production in the region.

Answer 1

The most likely outcome without government intervention in the scenario described is:

A temporary shortage of paper will be remedied as consumers bid up prices, and paper production increases due to the rising profits associated with higher prices.

As the supply of paper decreases due to the destruction of paper mills, prices will rise due to the increased demand and decreased supply. Higher prices will incentivize remaining paper mills or new entrants to increase production when possible, eventually remedying the shortage.