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?

Question

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?

In: 821

Answer 1

You could choose not to raise prices, but chances are someone will raise prices because people like money, and they’ll sell out even though you’re selling cheaper because there isn’t enough of the product to go around. Eventually you’ll realize that all you’re accomplishing by keeping your price low is losing money, and you’ll raise prices in line with the market