Why is it that in economics, when demand is greater than supply, prices “automatically” go up? Isn’t it sellers that decide to raise prices because buyers are willing to pay more? Couldn’t sellers choose to not raise prices?
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Think of it like an auction.
If the bidding on an item starts at $1, and there’s only one person bidding, then you will sell 1 unit for $1 (low supply, low demand).
If the bidding on an item starts at $1, and there are two people bidding, you will sell 1 unit for more than $1 (low supply, high demand).
If the bidding on the item starts at $1, but there are thousands of similar items and only a few bidders, the units will likely not move at all, and thus the price will drop to make it more enticing for the bidders (high supply, low demand).
The economy is just this on a much larger scale.
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