Prices in a market are determined by supply and demand.

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Multiple Choice

Prices in a market are determined by supply and demand.

Prices in a market are determined by supply and demand. This happens as buyers and sellers interact to find an equilibrium price where the quantity they want to buy equals the quantity sellers want to sell. When demand increases, prices rise to balance the higher willingness to pay; when supply increases, prices fall as more of the good is available, and buyers can pay less. External price-setting, like a central authority fixing prices, brokers determining prices, or exchange rules setting prices, doesn’t reflect how prices are discovered in a competitive market. So the price-formation mechanism is the interaction of supply and demand.

Prices in a market are determined by supply and demand. This happens as buyers and sellers interact to find an equilibrium price where the quantity they want to buy equals the quantity sellers want to sell. When demand increases, prices rise to balance the higher willingness to pay; when supply increases, prices fall as more of the good is available, and buyers can pay less. External price-setting, like a central authority fixing prices, brokers determining prices, or exchange rules setting prices, doesn’t reflect how prices are discovered in a competitive market. So the price-formation mechanism is the interaction of supply and demand.

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