In a free market system, prices are determined by supply and demand. Such a system is self-correcting. If the demand for an item is increasing over time the price of that item will typically rise as well assuming the company or industry that makes that item is running at or near capacity. The higher volume and prices enable the supplier to earn excess profits (profits above and beyond the cost of capital.) Other economic actors see these high profits and enter the market. The incumbent suppliers increase production to earn even higher profits and to defend their market share. As supply rises to meet demand, prices peek out and if excess supply results, prices will roll over and fall.
