Final answer:
When the price is below the market-clearing price, falling inventories will typically cause the price to rise, as this indicates a shortage where demand outpaces supply, leading suppliers to increase prices to restore balance.
Step-by-step explanation:
When the price is below the market-clearing price, what generally happens is a mismatch between quantity demanded and quantity supplied. Specifically, falling inventories will cause the price to rise. This is because a lower price tends to increase demand, while suppliers may not wish to supply as much at this lower price, leading to a shortage of goods. When inventories start to fall because the product is being sold faster than it is being restocked, suppliers often raise prices to re-balance the level of demand with the supply.
A counter scenario, such as a price ceiling set below the equilibrium price, results in excess demand over supply, further exacerbating the shortage. This is different from the scenario where rising inventories suggest that supply exceeds demand, which might drive the price down, not up, as would be in the case when there is overproduction or a decrease in demand.