Supply, Demand, and the Invisible Hand
It's Not Just a Good Idea, It's The Law
All of this boils down to the law of supply and demand. The greater the demand for a given supply of a product, the higher the market price. The lower the demand, the lower the price. Likewise, the greater the supply of a product given a certain level of demand, the lower the price of that product. The lower the supply—the scarcer it is—the higher the price.
You knew that was the case. But now you know why. You also understand how markets work, how market forces are channeled into prices, and what can cause overall demand or supply for a product to shift.
Excerpted from The Complete Idiot's Guide to Economics © 2003 by Tom Gorman. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.