What does the law of supply and demand describe?

The law of supply and demand describes how prices in a market are determined by the relationship between the quantity of goods available (supply) and the desire of consumers to purchase those goods (demand). When demand for a product increases and supply remains unchanged, prices tend to rise due to competition among buyers. Conversely, if supply exceeds demand, prices are likely to fall as sellers attempt to attract buyers.

This law reflects the core principles of a free market economy, where the interaction between buyers and sellers establishes market prices. The balance between supply and demand helps allocate resources efficiently and influences various economic phenomena, such as inflation and scarcity.

Options that focus specifically on consumer preferences, production costs, taxes, or government regulation do not capture the essential dynamics of supply and demand in price-setting, making the choice that highlights the impact of availability and consumer demand the most accurate reflection of the law's scope.