What does the principle of supply and demand state?

The principle of supply and demand emphasizes that the price of a good or service is determined by the relationship between how much of it is available (supply) and how much consumers want it (demand). When demand for a good increases and the supply remains the same, prices tend to rise. Conversely, if supply exceeds demand, prices generally fall. This dynamic interaction reflects consumers' willingness to pay for goods and the quantity that producers are willing to sell at various prices. Thus, understanding this principle is essential for analyzing market behavior and pricing mechanisms.