What is the economic principle of supply and demand?

The economic principle of supply and demand articulates how prices are influenced by the relationship between how much of a product is available in the market (supply) and how much of that product consumers want (demand). When supply is high and demand is low, prices tend to decrease, whereas when demand is high and supply is low, prices generally increase. This interaction helps to create an equilibrium in the market, where the amount of product consumers are willing to buy at a given price matches the amount producers are willing to sell. This principle is foundational in economics and explains how market forces can lead to adjustments in price, encouraging efficient allocation of resources.

Other options present different concepts: one refers to government regulation, which does not reflect the natural market dynamics of supply and demand. Another suggests that demand always exceeds supply, which is not characteristic of market behavior, as variations in supply and demand can lead to different outcomes. Lastly, setting prices based on consumer income levels speaks to pricing strategies rather than the underlying mechanics of supply and demand itself.