Final answer:
If demand for finished goods increases but raw materials were under-ordered, the shortage would lead to higher prices and potentially attract more suppliers. Companies may adjust their production processes in response to changes in input costs. The market eventually finds a new equilibrium through the forces of supply and demand.
Step-by-step explanation:
If a business did not order enough raw materials but the demand for finished goods increased, the company would likely experience a supply shortage. As the market responds, the prices of the goods would be driven higher due to the increased demand and limited availability of the product. This situation encourages other suppliers to enter the market or existing suppliers to increase production to meet the demand, creating more equilibrium between supply and demand.
When a company faces a situation where one input becomes relatively more expensive, firms will often seek to adjust their production technology or process to rely less on the expensive input. They might substitute the expensive input with a cheaper one or invest in technology that is more efficient and requires less of the costly input.
The dynamics of supply and demand dictate that as prices continue to rise, consumers may eventually reduce demand or look for alternatives, while suppliers aim to capitalize on the higher prices by offering more of the product until the market stabilizes. Information and market forces will gradually correct for discrepancies in pricing and supply levels as the market seeks equilibrium.