Price Theory

Price theory is the study of how prices are determined in a market economy and how they influence the behavior of consumers and producers. It examines the relationship between supply (the amount of a good available) and demand (how much people want it). When demand exceeds supply, prices tend to rise; when supply exceeds demand, prices tend to fall. This interaction helps allocate resources efficiently, ensuring that goods and services end up where they are most valued. Ultimately, price theory helps explain how individuals and businesses make decisions based on costs, benefits, and market conditions.