Why do supply and demand affect prices?
Show answer & explanation
Answer: Buyers and sellers find balance
Stores follow economic laws — Wrong. Supply and demand aren't 'laws' businesses consciously follow—they're descriptions of natural market behavior. When demand exceeds supply, buyers bid prices up. When supply exceeds demand, sellers lower prices to clear inventory.
Supply and demand are random — Wrong. Supply and demand follow predictable patterns. When a hot new product launches with limited supply, high demand drives prices up. When warehouses overflow with unsold inventory, businesses discount prices to increase demand. It's systematic, not random.
Buyers and sellers find balance ✓ — Correct! Prices adjust until supply equals demand. If prices are too high, surplus inventory builds (supply > demand), so sellers lower prices. If too low, shortages occur (demand > supply), so sellers raise prices. This continues until equilibrium—where quantity supplied equals quantity demanded at a stable price.