What role does supply and demand play in pricing?

Can you explain how supply and demand affect pricing in the market?

Sure! Supply and demand are fundamental economic concepts that determine the price of goods and services. When demand increases and supply remains constant, prices tend to rise. Conversely, if supply increases while demand stays the same, prices usually fall.

What happens when there's a surplus of a product?

In the case of a surplus, where supply exceeds demand, prices typically decrease. This encourages consumers to buy more of the product, helping to balance the market.

And what about a shortage?

A shortage occurs when demand exceeds supply. In this situation, prices usually rise as consumers compete to purchase the limited available goods, which can eventually lead to an increase in supply.

Can you give me an example of this in real life?

Certainly! A classic example is the housing market. When more people want to buy homes than there are homes available, prices go up. Conversely, if there are too many homes for sale and not enough buyers, prices tend to drop.