When demand increases and supply decreases, the resulting market conditions typically lead to an increase in prices. Here's how it works:
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Increased Demand: When consumers want more of a product, they are generally willing to pay higher prices for it. This heightened demand puts upward pressure on prices.
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Decreased Supply: When the supply of a product decreases, fewer goods are available in the market. This scarcity means that consumers will compete for the limited available supply, further driving prices up.
As a result, the combination of increased demand and decreased supply creates a situation where sellers can raise prices because more consumers are competing for fewer goods. The ultimate effect is likely to be a significant increase in the equilibrium price of the good or service in question, along with a potential decrease in the quantity sold if consumers are priced out of the market.
In summary, when demand rises and supply falls, prices tend to rise in response to the imbalance between supply and demand.