Which principle indicates that buyers may pay a premium during a shortage?

The principle that indicates that buyers may pay a premium during a shortage is rooted in the concept of competition. When there is a limited supply of a desirable item or property, competition among buyers intensifies. This increased competition can lead to bidding wars or offers above the asking price as buyers strive to secure the asset before it is taken by someone else.

In a market scenario where demand exceeds supply, sellers can leverage this competition to their advantage, often resulting in higher sale prices. This behavior reflects the competitive nature of buyers who may perceive the scarcity of the item as an opportunity to pay more than they initially intended. Understanding this principle is crucial for appraisers, as it directly affects market valuations and pricing strategies during different phases of the economic cycle.