What effect does high demand with limited supply have on market prices?

Study for the GradReady Real-World Finance Exam. Utilize flashcards, multiple-choice questions, and detailed explanations to grasp essential financial concepts. Prepare for success!

High demand combined with limited supply typically leads to an increase in market prices due to the basic principles of supply and demand. When consumer interest in a product or service is high but there is not enough available to meet that demand, buyers are willing to pay more to secure the limited goods. This competition among consumers to purchase the product pushes prices upward.

In a market scenario where demand exceeds supply, sellers can take advantage of the situation by raising prices, knowing that consumers may be willing to pay these higher prices to obtain the product, leading to an overall increase in market prices. This behavior is fundamental in economics and exemplifies how scarcity can drive up value in a market. Other options reflect scenarios that do not accurately represent the relationship between demand, supply, and price. For instance, prices decreasing or remaining stable would only occur in conditions with either excess supply or a drop in demand, which is contrary to the premise of high demand and limited supply.

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