Price Determination in Markets
- In a market system, prices for goods/services are determined by the interaction of demand and supply
- A market is any place that brings buyers and sellers together
- Markets can be physical (e.g. McDonald's) or virtual (e.g. eBay)
- Buyers and sellers meet to trade at an agreed-upon price
- Buyers agree the price by purchasing the good/service
- If they do not agree on the price, then they do not purchase the good/service and are exercising their consumer sovereignty
- Based on this interaction with buyers, sellers will gradually adjust their prices until there is an equilibrium price and quantity that works for both parties
- At the equilibrium price, sellers will be satisfied with the rate/quantity of sales
- At the equilibrium price, buyers are satisfied with the utility that the product provides