What happens to values as demand increases and supply decreases?

When demand for a good or service increases while supply simultaneously decreases, a fundamental economic principle comes into play: scarcity paired with heightened demand impacts market values significantly.

In such a scenario, when more people want a limited number of products or services, the competition among buyers intensifies. This competition drives up prices, ultimately leading to an increase in values. As demand rises, sellers recognize the opportunity to raise their prices due to the limited availability of the product or service, which can lead to more favorable conditions for sellers in the marketplace.

This relationship is foundational to understanding market dynamics, particularly in the context of appraisals and property values, where metrics of supply and demand greatly influence overall market conditions. As buyers are willing to pay more to secure a deal in situations of scarcity, it directly translates to increased values in the market.