Price Determination

Price determination refers to the process by which the price of a good or service is established in the market. It occurs through the interaction of supply and demand. When demand for a product increases or supply decreases, prices tend to rise. Conversely, if supply exceeds demand, prices usually fall. Market equilibrium is reached when the quantity supplied equals the quantity demanded at a specific price. Various factors, including consumer preferences, production costs, and external economic conditions, influence this dynamic, ultimately affecting how much consumers pay and producers earn.