The law of supply and demand - How does it work? I've learned what the principle of supply and demand says, and would paraphrase it like this:

The price of a good is at equilibrium when supply and demand are
equal.

Or with other words:

The price of a good is dictated by the principle of supply and
demand when supply and demand are equal.

My question is:

How does the principle (or even law) of supply and demand work in practice? Which
forces force the price to be at equilibrium?

That's what I came up with (a very raw model):

The producer or seller of a product notices that the product sells better than before.
From this he draws the conclusion that there is a bigger need for the product: consumers want to have it more urgently than before.
That means, consumers will probably be willing to pay a higher price for it than the current one.

Now there are different cases:

The producer can produce as much of the good as he could sell. He does so and sells it for the old price (making people happy). Or he takes a higher price (because he can, but not too high).

The producer can not produce as much of the good as he could sell. a) He doesn't want to grow, so he produces as much as he can and
sells it for the old price (&quot;first come first serve&quot;). Or he takes a higher price (but not too high).
b) He grows (taking credits) and raises the price to compensate the interests to be paid. Or he raises the price even more (because he can, but not too high).



Which of these scenarios is mainly responsible for rising prices
in case a good is demanded more strongly?
And what is responsible for rising prices of goods with no rise of demand? (Is this only a collateral effect?)
You need to take into account the cost of producing a good as well. In most cases, the marginal cost of producing something is increasing. A profit-maximizing producer would want to produce until price is equal to marginal cost. That means that scenario 2 is responsible.

For the case of rising prices with no increase in demand, just think about the basic demand and supply model. What could cause an increase in equilibrium price without the demand's changing? (Hint: a shift in ____). What could cause that shift?