Which statement best describes the law of supply and demand?

The law of supply and demand is a fundamental economic principle that describes how the price of a good or service is determined in a market. The correct statement emphasizes that when demand for a product is high and the supply of that product is low, prices tend to rise. This occurs because consumers are willing to pay more for the limited availability of the good, which drives prices higher.

In this context, high demand signifies that more consumers want the product, while low supply indicates there are not enough goods available to meet that demand. This imbalance naturally leads to an increase in price as sellers capitalize on the heightened competition among buyers.

The other options do not accurately capture this relationship as effectively. For instance, if demand decreases, it does not consistently lead to price increases, nor does it maintain stable prices irrespective of supply levels. Additionally, an increase in both demand and supply doesn't always lead to price decreases; factors influencing consumer preferences and market conditions can complicate the dynamics at play. Understanding this concept helps clarify how prices are formed in response to changes in consumer behavior and market availability.