Which of the following economic theories best explains the relationship between supply and demand in setting prices?

The economic theory that best explains the relationship between supply and demand in setting prices is called the law of supply and demand. This law states that when the supply of a product increases and the demand stays the same, prices tend to go down. Conversely, if demand increases and supply remains the same, prices usually go up. For example, if a new smartphone is released and many people want to buy it, but there are only a few available, the price will likely rise because of the high demand and low supply. Understanding this relationship helps us see how prices change in different situations, like during sales or shortages.