How do supply and demand affect prices?
Supply and demand are critical concepts that help determine the market price of goods and services in a market economy. The law of demand states that the quantity of a good or service consumers want to buy decreases as the price increases, while the law of supply says that the quantity of a good or service producers offer for sale increases as price increases.
When the demand for a particular good or service goes up, and the supply doesn't increase accordingly, the price goes up because there are more buyers trying to purchase a limited amount of the product. On the other hand, when the supply of a particular good or service increases, and the demand doesn't increase to match the larger supply, then the price for the product declines as sellers try to get rid of the excess supply.
Supply and demand forces are always shifting, so the price of goods in a market economy is always in flux. Overall, understanding supply and demand can assist businesses in determining the best price for their product and consumers in finding the best deal.
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