Why do supply and demand affect prices?

Answer: Prices settle where what buyers want matches what sellers offer

Supply and demand change randomly, so prices are unpredictable — 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.

Prices settle where what buyers want matches what sellers offer ✓ — Correct! Prices adjust until the amount buyers want equals the amount sellers offer. 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.

Stores set prices by following official economic rules — Wrong. There are no official rules that stores consciously follow to set prices; supply and demand describe how buyers and sellers actually behave, not a rulebook. When demand exceeds supply, buyers bid prices up, and when supply exceeds demand, sellers lower prices to clear inventory.