The Price System

The price system is how markets determine the value of goods and services through the process of buying and selling. Prices are set based on supply (how much of a product is available) and demand (how much people want it). When demand exceeds supply, prices tend to rise, encouraging producers to make more. Conversely, when supply exceeds demand, prices usually fall, prompting producers to make less. This system helps allocate resources efficiently, guiding producers on what to produce and consumers on what to buy, ultimately balancing the economy through the signals prices send.