Of course, there is also the account of Surplus and Shortage.
When there are way too many types of one item. The price will not be able to remain the same. As quantity demand decreases the price will also increase. As quantity demand increases the price will decrease. This is the inverse relationship that Demand and Price share. But with Supply and Price, it is quite opposite. They share a direct relationship. As supply increases, price increases and also vice-versa.
The matter is prices can be jacked up too high, to a point a single low price may tilt the the whole balance and create a downfall on the economy. When demand becomes less then what suppliers are selling at a certain price, this becomes a Surplus. In a surplus, prices will drop quickly and the quantity supplied will also become dropped. Because many people will not sell for a lower price, but they will be forced to eventually.
Prices will continue to drop until the market reaches a "Market Equilibrium" point. This is where demands are met by the suppliers at a certain price.
But, if prices continue to drop, we find that more people are willing to buy the item and suppliers will quickly be demanded for the item. The demand for the item quickly rises at a lower price and the suppliers are forced to sell at low prices. Then comes the point where few items of equal value can be found. This is called a Shortage, where the demand for the item is huge and the supply of it in the market is low. It goes until very few are left are in the market for low prices. To make up for the shortage and create less of a demand, sellers begin to raise the prices. Those that are in high demand for the product are forced to buy at the now higher price. Prices will continue to rise as the item is demanded more then it can be sold. The prices will continue to rise until the suppliers can supply a good amount to those that demand the item.
We find ourselves now back at the "Market Equilibrium" point.
Markets are fluctuating waves. To understand how they work and how an item will work in the economy, is almost impossible. Each item has a different "wave". That is how Shortage and Surplus will greatly affect how markets work.
Hope all of you enjoyed that blurb of Economics.
