FROM THE PRACTITIONERS NOTEBOOK:
In efficient markets, prices are set by willing buyers and willing sellers agreeing on the price. This is the intersection of the sellers’ supply curve and buyers’ demand curve to arrive at a market clearing price.
The supply curve is typically the variable cost of every supplier order from smallest to largest.
The demand curve is the variable cost of the buyers, ordered from largest to smallest.
Each supplier is willing to operate — at least in the short run — as long as the price is at least as large as their variable cost.
Each buyer is willing to participate — at least in the short run — as long as the price is lower than their variable cost.
When the efficient market is intervened by a governmental authority and a price is set below the market clearing price, quantity demand is increased, but quantity supplied is lowered. Thus, a shortage is established EVERY time price controls below the market clearing price is imposed.
Countless examples exist.