Final answer:
True, if supply falls and demand rises at the same time, prices typically increase. This is because reduced availability of goods and increased consumer desire both contribute to pushing prices up to achieve a new market equilibrium.
Step-by-step explanation:
True. If a fall in supply and a rise in demand occur at the same time, then we can expect the price to also rise. A fall in supply suggests that there are fewer goods available, which can be due to various reasons such as increased production costs or supply chain issues. Simultaneously, a rise in demand indicates that more consumers are willing to purchase the good, possibly driven by factors such as increased preference for the product or higher income levels.
In the case of heating oil, for example, cold weather creates higher demand as people need to heat their homes. If this increased demand coincides with a constrained supply, perhaps because of supply chain disruptions or production issues, the result would typically be an increase in price. The market achieves a new equilibrium at a higher price level because consumers are competing for a limited number of goods, pushing the price up.
Moreover, because the cost of production and the desired profit equals the price that firms set for products, an increase in production costs necessitates an increase in the price to maintain profit margins. In real-world scenarios, these dynamics can be complex and impacted by numerous shifting factors. However, the fundamental principle remains that when supply decreases and demand increases simultaneously, prices are generally driven upwards.