When supply decreases and demand increases, what can we predict will increase?

When supply decreases while demand increases, we can predict that the price will increase. This is rooted in the basic principles of supply and demand in economics.

When demand rises—implying consumers are willing to purchase more goods at various price points—and supply falls—indicating that fewer goods are available for sale—there is a mismatch between the quantity that consumers want to buy and the quantity that producers are willing to sell. In this scenario, consumers are competing for a limited supply, which exerts upward pressure on prices.

As the demand curve shifts to the right (indicating an increase in demand) and the supply curve shifts to the left (indicating a decrease in supply), the equilibrium price rises. So, as consumers are willing to pay more due to increased demand, and as the availability of goods decreases, sellers can raise prices.

This dynamic leads to an increase in price, as sellers respond to higher demand with higher prices, maximizing their potential revenue from the limited amount of goods they have available.