What economic principle justifies letting prices rise to eliminate shortages?

The principle that justifies allowing prices to rise in order to eliminate shortages is rooted in the concept of supply and demand. This fundamental economic theory posits that the price of a good or service is determined by the relationship between its availability (supply) and the desire of consumers to purchase it (demand).

When there is a shortage, it means that the quantity demanded exceeds the quantity supplied at the current price. Allowing prices to rise serves as a signal to producers that there is an unmet demand for the product. Higher prices incentivize producers to increase production or bring more of the product to the market, as the potential for higher profits becomes attractive. Simultaneously, higher prices may lead some consumers to reduce their demand, thereby bringing the market back into equilibrium, where supply meets demand.

In this way, the workings of supply and demand effectively allocate resources, helping to eliminate shortages in a market economy. The other options do not capture the dynamic interaction between producers and consumers that is central to this principle.