The Laws of Supply and Demand - 5

In a market economy, the prices of goods and services are influenced by the interaction of the market forces of supply and demand. If there are only a limited stock of some product available, competition between potential buyers tends to see prices rise, a consumers ''bid up'' prices. Can you see this effect in the diagram to your right?

Similarly, competition between sellers of the product tends to see prices fall, as they try to attract buyers.

Markets generally reach an equilibrium price and quantity, where suppliers and consumers reach a compromise. Setting prices too high can lead to low sales, and the potential for making a loss. Demanding low prices may lead to no purchases, and unsatisfied wants.