In supply and demand theory, if supply is low and demand is high, what happens to price?

In supply and demand theory, if supply is low and demand is high, what happens to price?

• A. The price rises
• B. The price falls
• C. The price stays the same
• D. The price becomes unpredictable

Answer: (A)

Prices rise when scarcity is high: the amount available is low while more people want it, creating excess demand relative to supply. That shortage puts upward pressure on the price, since buyers are competing for the limited goods and sellers can charge more. Over time, higher prices incentivize more production and reduce some demand, moving toward a new, higher equilibrium price. So, when supply is low and demand is high, the price increases.

Prices rise when scarcity is high: the amount available is low while more people want it, creating excess demand relative to supply. That shortage puts upward pressure on the price, since buyers are competing for the limited goods and sellers can charge more. Over time, higher prices incentivize more production and reduce some demand, moving toward a new, higher equilibrium price. So, when supply is low and demand is high, the price increases.