How do supply and demand typically affect pricing in a market?

The phenomenon of supply and demand plays a crucial role in determining prices in a market. When demand exceeds supply, meaning that consumers want more of a product than is available, prices tend to rise. This increase in price often leads to a natural equilibrium as producers respond to higher prices by increasing production or as consumers start to purchase less due to the higher prices.

Conversely, when supply exceeds demand—indicating that there is more of a product available than there are consumers wanting to buy it—prices generally fall. This decrease in price is also a market mechanism that helps restore balance, encouraging consumers to purchase more as the product becomes less expensive and prompting producers to reduce supply or exit the market entirely.

Thus, the statement that prices typically rise when demand exceeds supply and fall when supply exceeds demand accurately describes this relationship. It captures the essence of the market forces at play, which aim to reach equilibrium where the quantity supplied matches the quantity demanded. This dynamic nature of pricing is fundamental to understanding how markets operate. Other statements may misinterpret or oversimplify these interactions, such as suggesting that prices remain constant regardless of changes in supply and demand, which is typically not the case in a fluid market.