The law of supply and demand is a fundamental economic principle that states that an increase in the availability of goods or services will cause a decrease in price.
Conversely, when goods or services are scarce, prices tend to rise.
Understanding how this principle affects your business can help you make more informed decisions about pricing and inventory levels.
For example, when the economy is in a recession and consumers have less expendable income.
This will cause an increase in price.
In addition to this more indirect effect of general economic conditions on pricing decisions.
There are also other factors that impact prices.
Such as natural disasters or political unrest.
When these situations disrupt production or make it difficult for suppliers to deliver goods to your business’s location.
Then you will see significant increases in price.
Which may be reflected immediately on what customers pay at checkout counters.
In summary: a decrease in supply leads to a large increase in prices from the law of supply and demand.
Other factors can include natural disasters and political unrest.